PROTECTIONISM

New policy to tax finished imported goods higher

Kenya will extend to a fourth bound to charge final goods at 35 per cent import duty

In Summary

•The new provisions will allow Kenya to extend to a fourth bound, where the 25 per cent duty will apply for semi-finalized goods and 35 per cent duty charged on imported goods that can be produced in the country.

•This means imports such as toothpicks, pieces of equipment like furniture and chairs, some machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics will be affected.

Finished goods imported into the country will be charged a 35 per cent duty, according to the East Africa Community ministry.

The implementation of the new Common External Tariff (CET) expected to protect local industries will commence after finalisation of talks in November.

Currently, Kenya's CET on imports are set at zero per cent on raw materials and capital goods, 10 per cent on intermediate goods and 25 per cent on finished goods.

 
 
 

According to EAC director general (customs and trade) Kenneth Bagamuhunda, the current tariffs are been overtaken by economic and trade changes and can no longer bring trade benefits to the country.

“The tariffs we are working on were adopted in 2005 and are not working for us. Imports charged at 0-25 per cent rates are still cheaper than what is produced in the country,” Bagamuhunda said.

He spoke during a press conference on the update of High-Level conference on trade integration in EAC as part of the community's 20th anniversary and 15th anniversary of implementing customs union.

The new provisions will allow Kenya to extend to a fourth bound, where the 25 per cent duty will apply for semi-finalized goods and 35 per cent duty charged on imported goods that can be produced in the country.

This means imports such as toothpicks, pieces of equipment like furniture and chairs, some machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics will be affected.

The increase in taxes is expected to lower imports and protect the countries from spill over effects of the ongoing trade wars between China and US, and resolution of Brexit.

In June, imports such as mineral fuels and lubricants accounted for 11.6 per cent of Sh114.6 billion purchased goods into the country, machinery and transport (4.7 per cent) , manufactured goods (1.4 per cent), chemicals (7.3 per cent), crude materials, except fuels (38.3 per cent) beverages and tobacco (30.8per cent).

 
 
 

Exports fell 3.4 per cent to Sh51.1 billion, as shipments declined markedly for tea and coffee.

Earlier reviews and negotiations had set the implementation of the duties to start on July 1, 2019. The policy was also indicated in the Finance Bill 2018 but has been delayed with the involvement of the EA community.

According to EAC and regional development Principal Secretary Margaret Mwakima the negotiations will be concluded in the next set of the council meetings in Arusha, Tanzania in November.

We have had engagements at the citizenry level and private sectors including Kenya Private Sector Alliance and Kenya Association of Manufacturers,” Mwakima said.

“Negotiations meetings with Kenya, Tanzania, Uganda, South Sudan are proposing a tariff at 35 per cent while Burundi and Rwanda propose at 30 per cent. But we hope to settle on the average tariff or a higher rate.”

A private sector business council is set for November 29 while the EAC countries will have a secretariat meeting in November 30.

The rules may, however, collide with World Trade Organisation agreements which restrict discrimination between their trading partners, even as it allow developing countries to set special principles for their markets.

Mwakima has said they will work within the legal framework that offers a win-win situation for other trading partners.

“The market force within the community should be able to do what is best for their countries. Our youth need jobs and economies need to grow."

"The rest of African countries are backing us up but at the same time we will also work in considerations of some of the trading partners," she said.