Lubricant makers have asked the government to remove import duty on raw materials used to manufacture the product to allow them compete with importers.
Petroleum Institute of East Africa (PIEA) is seeking the National Treasury to zero rate base oils and additives used as raw materials for manufacture of lubricants, which are currently charged 10 percent import duty.
PIEA argued that other petroleum products such as diesel, premium motor spirits (PMS) and jet fuel are zero-rated, given their status as raw materials, while the base oils of lubricants are classified as intermediate goods hence the duty.
Import duty is levied on goods from other countries with current rates of zero percent for raw materials and capital goods, 10 percent for intermediate goods, and 25 percent for finished goods.
The petroleum industry lobby said the taxation has resulted in the contraction of the local lubricant and package manufacturing, amid high China imports, forcing some companies to close shop and leading to loss of jobs.
“Uncompetitive lubricant pricing in the regional markets owing to the I0 percent duty on raw materials (additive and base oil) expenses are hurting local blending of lubricants,” PIEA said in a submission to the draft national tax policy.
“Lubricant segment reforms will not only lead to the revival of the local lubricant industry but also help Kenya regain regional dominance in an export market currently being exploited by neighbouring countries.”
The taxation has led to the underutilisation of local manufacturing capacities due to the influx of imported lubricants, according to PIEA.
As a result, more than 40 percent of lubricants have been imported into the country as finished products despite existing lubricant manufacturing companies running at half capacity.
The value of imported lubricating oils and greases increased by 24 percent in 2021 to Sh2.86 billion compared to Sh2.3 billion a year earlier, Kenya National Bureau of Statistics data shows.
The increase has largely been on account of imports used by Chinese contractors executing works under government projects.
This comes after the Parliament in August last year shot down a proposed law that sought to compel foreign contractors to source all products and services locally, on concerns of low quality which would compromise standards of the infrastructure projects.
The bill was to amend the current law that requires all the tenderers to source at least 40 percent of local products and services, dealing a blow to Kenyan firms.
The value of exports and re-exports was Sh6.67 billion, up by 26.5 percent from 2020’s sales of Sh5.3 billion.
Consumption of lubricants in the Kenyan market increased to 61,602 metric tonnes in 2021 from 57,249 tonnes in 2020. However, KNBS data shows over 12,600 metric tonnes was imported while 28,800 tonnes of lubricants were exported in the year.
The National Policy Tax is expected to remove the inconsistency in tax regime through finance bills introduced annually that have caused shockers to consumers and investors, leading to uncertainty, partial hoarding of goods and unexpected price rise.
The standard rate on import duty is expected to cut wastage on taxes through misdeclaration of tariffs which creates room for tax evasion and sub-standard products.