Import levy revenue dips by Sh7bn on rate cuts, trade decline


Standard gauge railway wagons in Mombasa on February 5, 2024. Railway Development Levy collections fell hitting Sh16.5 billion. PHOTO | KEVIN ODIT | NMG

Collections from taxes on international trade and transfers, including the Import Declaration Fee (IDF) and the Railway Development Levy (RDL), fell by Sh7 billion in the six months to December 2023.

New data from the Treasury shows that collections from IDF fell by Sh3.5 billion to Sh23.9 billion from Sh27.4 billion in December 2022.

RDL collections, meanwhile, fell by a similar margin, hitting Sh16.5 billion from Sh20 billion previously recorded.

The fall in collections from the two import levies is largely attributed to tax cuts under the 2023 Finance Act and the overall drop in international trade last year as rising import costs proved inhibitive, cutting the value of goods and services ordered from outside Kenya.

The IDF levy was reduced from 3.5 to 2.5 per cent while the RDL was cut to 1.5 from the previous 2.5 per cent.

Cuts to the two levies had been expected to reduce the cost of imports and give incentives to manufacturing.

“The reduction of the RDL shall reduce the cost of imports and incentivise growth in the local manufacturing industry by reducing the cost of raw materials,” analysts at KPMG indicated in a July 2023 note.

On hindsight, however, higher costs – including the depreciation of the local currency – reduced demand for overseas goods and services, leading to a slump in the value of imports.

According to data from the Central Bank of Kenya (CBK), total import costs in 2023 dropped by 10.6 per cent to Sh2.4 trillion ($17.1 billion) from Sh2.7 trillion ($19.1 billion) the previous year.

“The decline in 2023 reflected lower imports across all categories, except food and crude materials,” the CBK report said.

Iron and steel imports reduced the sharpest by some 32.2 per cent while other significant declines were observed in the importation of palm oil, electric machinery and paper articles.

The import declaration fee is levied on all goods imported into the country and is paid by the importer at the point of entering the goods for home use.

Raw materials and intermediate products imported by manufacturers approved by the Investments, Trade and Industry Cabinet Secretary can, however, enjoy a lower preferential rate.

The RDL also applies to all goods imported into the country for home use.

Import duty collections, which also form tax/levies on international trade, grew marginally by 1.7 per cent to Sh68.2 billion in the six months to December, from Sh67 billion previously.

Collections of the duty, however, trailed the target of Sh87.6 billion by Sh19.4 billion.

Value Added Tax (VAT) on imports, meanwhile, grew by 22.7 per cent to Sh167.9 billion from Sh136.9 billion but missed the December 2023 target slightly by Sh1.1 billion, the report adds.

The missed targets on imports-related taxes and levies were partly responsible for the Sh186.1 billion ordinary revenue shortfall in the period as the Kenya Revenue Authority raised Sh1 trillion against a target of Sh1.2 trillion.

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