NOT so long ago, the Kenya Revenue Authority (KRA) sought to introduce a cash bond for all imports transitioning through the Kenyan port of Mombasa to land locked countries such as Uganda. However, that failed after heated debates.
Before the dust settles, Ugandan traders have made a startling revelation pinning the KRA for frustrating land locked countries.
How the bond works
Kenya has maintained that all millers and sugar importers must provide surety in the form of an insurance bond from a reputable insurance firm, that transit sugar will not be diverted and sold in Kenya.
Uganda was allowed tax-free sugar imports for six months from August 2011 following an acute sugar shortage in the country.
Now, Kenyan authorities say that excessive sugar imports have been dumped on the Kenyan market.
"The Kenyans are simply scapegoating. The insistence on the insurance bond for Ugandan sugar imports is simply a tool they are using to protect their factories from competition by making Ugandan sugar uncompetitive," Everest Kayondo, the Kampala City Traders Association says.
He adds that the insurance bond on sugar imports takes close to a month to acquire and that during this time demurrage and handling charges at the Mombasa Port would have piled to render the imports too expensive for markets.
Tax collections by the Uganda Revenue Authority (URA) from sugar have collapsed to a mere sh3m in September 2012 from highs of sh2.15b a month before because of the delays associated with the particular bond imposed by Kenya according to reports
Kayondo says repeating the process for each sugar consignment will create a very steep hurdle for sugar imports.
Kenya started the use cash bonds after a six month duty free window granted for sugar imports into Uganda expired in January 2012 after prices of sugar stabilised at sh3,500 level from highs of sh8,000 at height of sugar scarcities.
The window came with a requirement that all sugar imports would be locally consumed or any re-exports to Kenya would attract a 100% tax in addition to the mandatory 25% East African Common External Tariff and Value Added Taxes of 18%.
Kenya says they estimate that they have lost close to Ksh14b (sh426b) in taxes on dumped sugar after they used a 10% tax rate equal to Ksh1.6b (sh49b) as the sugar was considered to have originated from Uganda.
Kayondo says Kenyan authorities are taking advantage of their membership on the Common Market for East and Southern Africa Preferential Trade Area (COMESA PTA) to acquire sugar imports from Mauritius at a lower 6% tax rate, later re-exporting the imports.
"KRA wants to coerce Ugandan companies into re-purchasing imports from Mauritius companies. The sugar being exported to Kenya is produced from Ugandan factories despite their repeated claims that it is being re-exported," he explained.
Steven Magera, the Uganda Revenue Authority (URA) assistant commissioner for trade, noted that the use of a particular bond on sugar imports to Uganda has reduced import volumes by increasing the length of time sugar imports spend in Mombasa port warehouses.
"We are not clearing as many tonnes of sugar imports as we used to before the measure was put in place by the Kenya Revenue Authority (KRA)," he said.
"Most sugar imports were being used for industrial processes and definitely, the amount of taxes being collected has been hurt as a direct result," he added.
Authorities from Kenya's tax body noted in reports that sugar imports from Uganda hit 5.4million kilogrammes in July, jumping from 2.1 million kilogrammes in March, pointing to possible dumping of sugar.
Jim Kabeho, the Uganda Sugarcane Technologists Association (USCTA) chair, revealed that Kenya's tax officials were in the country a week ago and were availed with sugar samples to prove that all sugar exported to sugar is locally produced.
"Kenya is misinformed, all sugar imported is used for local consumption. I hope their lab tests will be able to verify that all the sugar in our stores is locally produced," he said.
"The figures about sugar exports from Uganda are simply that - just figures! Sugar will always be exported to where demand is high, that can be South Sudan, Rwanda or even Kenya," Kabeho added.
He revealed that the Kenyan tax officials visited Kakira Sugar, Sugar Corporation of Uganda Limited (SCOUL) and Kinyara Sugar to verify production and export volumes.
K.P Eswar, the Kakira Sugar Works corporate manager noted that the company is no longer exporting to Kenya after tight controls on sugar exports from Uganda were instituted.
"The increment in levies by the Kenya Revenue Authority will affect East African Community relations negatively. We are transparent and have nothing to hide.....We are no longer selling sugar to Kenya because of tight controls instituted by the KRA on importers in the country," he said.
Kenya's tax body has blacklisted a number of Kenyan importers of Uganda's sugar, highlighting Kakira Sugar as the prime re-exporter after the firm's records showed that 56% of all sugar exports had been sent to Italy, 22% to Kenya, 12% to the UK, 8% to Tanzania and 2% to Spain in recent months.