11 March 2014

Rwanda: Traders Wary of Kenya 'Rail Tax'

Kenya's decision to maintain a 1.5 per cent railway development levy on all exports through Kenya has created uneasiness among Rwandan traders.

The Kenya Revenue Authority (KRA) maintained the levy despite last year's directive from the East African Community Council of Ministers instructing Kenya to abolish the tax.

KRA insist that the levy is important because it will help in the construction and rehabilitation of the country's ailing railway line linking the region to Mombasa port, and will be paid on the basis of the customs value of goods on entrance into Kenya.

"I wish to draw your attention to section 117A (1) of the Finance Act 2013/2014, which stipulates that there will be a levy known as the Railways Development Tax imposed on all goods entering the country. The 1.5 per cent levy will be payable on the basis of the customs value of imported products upon making entry with no exemptions and exceptions," Beatrice Memo, Kenya's commissioner in charge of customs, said in a letter to all EAC partner states.

However, business people and the East African Business Council are concerned that the levy could hinder efforts to promote regional exports if it's not abolished. The council urged the East Africa Community (EAC) secretariat to intervene immediately and resolve the matter with KRA.

Andrew Luzze, the East African Business Council executive director, said imposing a levy on EAC exports is inconsistent with the bloc's customs union protocol.

"Kenya was directed to abolish the levy on exports from EAC countries three months ago, but no effort has been made to scrap this fee.

"This will frustrate efforts aimed at promoting regional exports, so the council's decision should be upheld and implemented."

Early this year, the East African Community drafted a new export strategy that is aimed at marketing the region as a single source of quality goods, and also to boost trade among member states for the next four years.

However, according to local business people, with the introduction of new taxes on exports all these efforts could result into nothing.

Fiona Uwera, Rwanda's technical liaison officer representing the Private Sector Federation at the East African Business Council, said the levy is a big challenge to traders and will hurt regional business if it is not scrapped.

Other experts argued that such goods must conform to the Rules of Origin to qualify for exemption from paying the railway development levy.

"They must be accompanied by an EAC Certificate of Origin, meaning the goods are originating from one of the EAC bloc to enjoy any tax exemptions," a trade expert noted.

Peace Kangobe, the managing director of Life Living, a clearing firm in Gikondo, said imposing new taxes on goods in transit through Kenya could spark a similar reaction from other partner states and cripple regional trade.

"This is not the time to impose levies on goods originating from the EAC... Concerned authorities should instead be looking for ways how some of the current taxes can be reduced further or even abolished," Kangobe said.

The EAC Customs Union Protocol which came into effect in July 2009 seeks to consolidate the East Africa Community into a single trading bloc with uniform policies. The protocol aims to build a larger EAC economy with excellent bargaining power on international markets.

Efforts to have a single tax policy across the bloc are underway and, according to this policy, taxes will be assessed from first point of entry.

Presently, the Kenya is in negotiations with the regional shipping body over the new proposed increase in tariff on loading and discharging of some imports, which is causing a lot of uneasiness among traders.

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