It would be a very happy new year for both manufacturers and consumers, but for the Kenya Revenue Authority.
Since mid-last year, Brent crude oil and US oil prices have been on a downward spiral, falling by more than 50 per cent. This followed the discovery and exploitation of shale oil in the US, which led to less demand from the superpower and over-supply from the Organisation of Petroleum Exporting Countries (Opec).
To counteract this development, Europe is now facing the option of quantitative easing to fight deflation, which tends to discourage investment and expenditure due to a contraction in money supply in the economy. (Quantitative easing pumps money into the economy to encourage banks to make more loans and jump-start investments.)
Both manufacturers and consumers should be reaping from the plummeting oil prices.
While our fuel prices and prices of locally manufactured products have generally gone down, they can do so much further.
Data from the Kenya National Bureau of Statistics (KNBS) shows that the Producer Price Index decreased by 1.28 per cent in the last quarter of 2014.
The drop was attributed to lower electricity costs after a fuel cost adjustment from Sh3.47 to Sh2.87 per KWh and a drop in the cost of manufacturing food products, coke and refined petroleum products.
KRA does not seem to have registered as yet that globally, the cost of raw materials has come down and importers are now paying more for goods due to customs value uplifts.
Schedule 4 of the East African Community Management Act 2012, which domesticates the WTO Agreement on Customs Valuation, equates the customs value of imported goods to the transaction value and provides a solution in case the import value cannot be determined as follows: “Where the cost of the goods cannot be determined, the cost of similar or identical goods exported from a Partner State or at about the same time, shall apply.”
This is not what is happening at our borders. In disregard of the law, KRA is valuing goods even higher than the transaction prices.
Let me give a hypothetical example. A consignment of similar goods comes into the port of Mombasa. The first batch is valued at Sh10 per unit, a cost similar to last year’s prices. The consignment is allowed entry without any problem.
The second batch, which comes from a different supplier who has lowered his prices, is valued at Sh9 and KRA revalues it to Sh11.
This practice goes against the Act’s stipulations, which ask customs to revalue it at Sh10, but only if they cannot determine the value of the goods. The bottom line is that manufacturers are overpaying duty.
Price uplifts were on the increase last month, leading to suspicions of rent seeking.
If KRA is relying on the Internet to peg their prices, then they are doing manufacturers a disservice because those are not the prices for sale to the East African region.
Usually, Internet prices already include taxes. In some cases, they are the prices for goods destined for foreign markets and specifications for such products are usually very different from those of products destined for Kenya or the region.
It is for this reason that the Fourth Schedule of the Act is very specific that such goods should be “sold for export to Kenya”. A reasonable valuation should take into account these considerations.
Granted, there are fraudsters out to take advantage of the situation, and KRA has to ensure that prices are, indeed ,falling and that this is not under-invoicing.
Still, genuine manufacturers want to benefit from the reduction of crude oil prices by paying duty on the prevailing customs value, not on the perceived customs value by KRA.
Importers have a right to explanation on any uplift by a customs authority. And even as these cases are being resolved at customs, manufacturers have a right to clear their goods with security, under bond, bank guarantee or a surety to safeguard the duty payable under this value.
In the meantime, the Consumer Price Index in December was up by 0.43 per cent. While many other factors led to an increase, if KRA continues with uplifts, consumer goods are not going to get cheaper.
Source: Daily Nation
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.