Logistics players fault new bonded warehousing rules

Players in the logistics and manufacturing sector have warned that the implementation of the cessation of bonded warehousing of 17 goods by the government which took effect on Monday will directly affect the economy and supply chain in particular.

The Kenya Association of Manufacturers (KAM), Container Freight Stations (CFS) owners and players in the clearing and forwarding sector said the gazette notice issued by Kenya Revenue Authority (KRA) on May 13 this year is likely to have the undesired effect of making the country uncompetitive and less attractive to investors.

The KRA, which suspended the implementation of the notice from August 12 for two months to give adequate time for importers to clear such goods in the warehouses, maintains the grace period is over and the rule will start applying.

The policy will prevent importers of certain consumer goods from using bonded warehouses for storage and now they will be required to pay duty upon arrival of goods into the country.

According to the directive, wines and spirits, second-hand motor vehicles, clothing and textiles, office supplies, foodstuffs of any form including bulk commodities, cigarettes, toiletries and spare parts will all attract full customs duties to be paid on arrival. Construction materials, electrical parts, cameras, phones, tyres, lubricants, used footwear and furniture will also fall under the new rules.

The policy changes will remove the advantages that bonded warehouses have provided importers in the past, and smaller businesses are expected to be hardest hit. In addition to the delayed payment of taxes that helps manage cash flow, the use of bonded warehouses provides storage facilities for goods while planning onwards export, and for assisting in stock management.

KAM CEO Phyllis Wakiaga said the changes will lead to challenges in time management, caused by inconsistencies and logistical challenges since customs bonded facilities assist in stock and logistics management.

"We shall also see intermittent out of stock (goods), leading to inherent shopping logistics challenges from various sources, consolidation processes, unpredictable weather patterns and port inefficiencies among others," said Ms Wakiaga.

She said with the focus being put on meeting tax obligations on current stock in bond and future orders based on demand, the directive will lead to cut back on manufacturing operations in order to remain afloat. The bond facility assists in managing stock from a national perspective since some firms have operations across other counties outside Nairobi and in the neighbouring countries.

"Some firms may consider closing their export businesses due to inability to provide a wide range of finished products in bonded facilities. Our current list of export customers come from DR Congo, Uganda, Rwanda and South Sudan, and they source for their goods in the country," she said.

There is need, Ms Wakiga noted, for a functional customs bond facility to facilitate this critical trade in the region as the closure of export businesses might affect local industry's competitiveness, profitability and operations.

The Kenya International Freight Forwarders Warehousing Association (KIFWA) National Chairman Roy Mwanthi said the policy will directly affect cargo throughput at the Port of Mombasa as traders will only import what they can be able to pay taxes at the port entry.

"Businesses world over rely on bonded warehousing to manage cashflow and secure global supply chains. Bonded warehousing is one of the most effective tools in the hands of customs to enable it carry out its core mandate of trade facilitation," said Mr Mwanthi.

Wilfred Oluga. CEO of Regional Logistics Centre, one of the CFSs in Mombasa, said the move by KRA in its bid to stop tax cheats, hoarding of goods and importation of illicit goods was ill advised since it would kill CFSs business.

"We urge KRA to improve on surveillance rather than taking such action to a struggling logistics sector. Warehouse business employ thousands of people and this will also affect traders from our neighbouring countries who use Port of Mombasa to do business," said Mr Oluga.

Professional services firm, PricewaterhouseCoopers (PwC) warned that the new regulation, intended to speed up revenue collection amid the Covid-19 pandemic, could result in some small businesses ceasing operations.

"The new rules are expected to potentially have a negative impact on multinational and local businesses that are involved in international trade activities, both in Kenya and in the wider Eastern Africa region, as well as on potential new investors," the company stated in a report.

The PwC argues that the restrictions are likely to have the undesired effect of making the country uncompetitive and less attractive to investors.

“The new regulation is counterproductive to the government's agenda of developing infrastructure to make Kenya a global and regional logistics hub," it said.

Experts say the new policy is against the East African Community Customs Management Act, 2004 (EACCMA) which provides that imported goods liable to import duty may be warehoused without payment of the requisite duties. Such goods may be warehoused in a government warehouse or a bonded warehouse (whether general or private), commonly referred to as Customs bonded warehouses.

Goods which are warehoused may subsequently be cleared for inter alia home consumption, exportation, or for use as stores for aircrafts or vessels. Customs bonded warehouses are operated under the supervision of customs and bond security is executed to guarantee the deferred duties on the goods stored therein.