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Millions lost as cartels smuggle ethanol using cereals containers

Smuggled ethanol impounded by Kenyan authorities at the Isebania border point on January 11, this year. photo | courtesy
Smuggled ethanol impounded by Kenyan authorities at the Isebania border point on January 11, this year. photo | courtesy 

Unscrupulous traders are using cargo containers loaded with cereals meant for the Kenyan market to conceal illegal ethanol imports and avoid paying taxes.

Information independently obtained by the Sunday Nation show that the dealers, in cahoots with some border staff, take advantage of the porous Kenya-Tanzania borders at Isebania and Namanga to bring in cheap ethanol, thereby denying Kenya Revenue Authority (KRA) millions in unpaid taxes.

Already, a local anti-counterfeit lobby group Futa Magendo Action Network (FMAN) has raised the alarm over the illegal imports by petitioning President Uhuru Kenyatta to order a crackdown.

The petition, which was copied to Interior Cabinet Secretary Fred Matiang’i, Inspector General of Police Joseph Boinnet, Director of Criminal Investigations George Kinoti, Director General of the National Intelligence Service Maj-Gen Phillip Kameru, KRA Commissioner General John Njiraini and the chairman of National Authority for the Campaign Against Drug Abuse (Nacada), says the illicit ethanol has impacted negatively on the alcohol industry.

“Ethanol being the main ingredient for producing potable spirits is finding its way into Kenya via the Kenya-Tanzania borders. The product is being smuggled into the country without paying the relevant taxes, mainly excise duty and VAT, which makes it cheaper than products purchased through legal channels. This gives the illegal manufacturers the right to sell their fake products at very low prices due to low cost of production,” the petition reads.

Some of the illegal consignments arrived into the country through Isebania border as recently as January 12, according to pictures the Sunday Nation has obtained. In the photos, drums of ethanol are concealed by bags of cereals from Tanzania to escape being picked out by KRA customs staff.

Reacting to the allegations of smuggling and printing of fake KRA stamps for spirits, KRA Commissioner, Domestic Taxes Department, Benson Korongo, said the number of local distillers of spirit was reduced from 177 companies to 26 due to engaging in illicit production.

“To eliminate use of licensed facilities in the production of illicit alcohol, KRA has put in place a stringent control and monitoring system. Currently, one company is undergoing prosecution for offences relating to illicit spirit,” said Mr Korongo.

He said the authority has put in place measures to eliminate smuggling of goods through the borders by deploying a fully dedicated Border Control Unit.

“The traditional areas of smuggling have been the Tanzanian border and the coast line. In the past, consignments smuggled through these points have been intercepted and cases are at various stages of prosecution,” he said.

Interior Cabinet Secretary Fred Matiang’i was not immediately available for comment but spokesman Mwenda Njoka said the minister was in touch with ground commanders responsible for enforcement and would get back to us in due course.

At the height of the crackdown on illicit brews, KRA in June 2015 introduced strict measures to regulate importation, manufacturing and sale of ethanol to stem use of the product in making illicit alcohol. Only companies registered under the Customs and Excise Act were to be allowed to deal in the product.

Importers were also supposed to declare to the Customs Department arrival of the product seven days before the consignment docks at Kilindini, Mombasa, where all sea-based imports were to be cleared for the local market.

Furthermore, transporters were required to use trucks fitted with electronic cargo tracking devices, as approved by the Customs Department, for easier monitoring and surveillance to avoid dumping of the product or diversion to unlicensed dealers.

The crackdown followed the death of more than 90 people suspected of consuming adulterated brews in Kiambu, Nyandarua, Makueni, Machakos, Embu and Murang’a counties. 

According to FMAN, the traders also use fake KRA stamps to hoodwink the public into believing that their businesses are legitimate.

“The national government, through the ministry of Internal Security, needs to seal the gaps at the borders to enable collection of the much-needed tax which can be directed to other national projects like free education,” FMAN says in the petition.

But according to KRA, although the period July 2017 to December 2017 saw a decline in excise duty from locally produced spirits, this was not caused by illegal practices. Rather, it was due to extended drought in sugarcane producing areas which led to a shortage of molasses — a raw material for production of spirits.

“The consequence of which was increased importation of neutral spirit to 13 million litres. Although local excise duty collections reduced, there was a proportionate increase in excise duty on imported spirits,” said Mr Karongo.

The lobby is also calling for amendments to the liquor licensing procedures at the county levels to ensure compliance by all traders of alcoholic beverages.

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