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End of Cheap Liquor, Spare Parts as KRA Shuts Down Bonded Warehouses

GBR Team 19/05/2020

Independent importers of wines and spirits, cigarettes, motor vehicles and spare parts are set to be hit hard as KRA effects tough new rules to prevent them from using bonded warehouses.

Bonded warehouses allow such importers to hold goods in KRA Customs controlled premises without paying duty until they are ready to sell them in the local or export markets. It also allows them to sell in smaller quantities to customers and pay tax on only what they have sold.

From 12 August 2020, such goods will no longer be warehoused and will attract full custom duty at the time of entry into the country.

Only large manufacturers such as EABL will be allowed to use custom bonded warehouses for wines, spirits and other alcohol related products.

The net effect is that small independent importers, who have provided thriving competition for local brewers in supplying the bar and restaurant industry will technically be knocked out of the market.

The same will apply to importers of second hand cars, spare parts, motorcycle tyres, cigarettes, lubricants and batteries, among others.

The measures are contained in Gazette Notice 3530 of 13 May 2020 and will take effect in 90 days from then; 12 August.

The Gazette Notice bars from customs bonded warehouses:

“Foodstuffs in any form, including bulk commodities, ashes, lubricants and batteries including motor vehicle batteries.”

“Building and Construction materials including stones, paint, nuts, bolts, pipes, metal, electric fixtures and parts, and tools.”

Others include cameras and phones, new and used clothing and textiles, used footwear, office supplies ready for retail such as cartridges and toners for pens and printers.

Also included are tyres for motorcycles and motor vehicles, denatured and undernatured spirits and other goods that the Commissioner of Customs may decide to include on the list.

Big 4 audit firm, PWC, delivered blistering indictment of the changes.

“The timing of the changes could not have come at a worse time considering the current global pandemic that has negatively impacted businesses’ cashflows and employment opportunities,” PWC says in a tax alert on its website.

“This is also contrary to the government’s initiative of relieving businesses from an undue tax burden.”

In the alert, PWC says that loss of the advantages that bonded warehousing provides will likely make Kenya unattractive to investors even as it seeks to position itself as a regional transport and logistics hub.

But the chairman of the Kenya International Freight and Warehousing Association (Kifwa), Roy Mwanthi, disagreed, saying the country needs the revenues now especially because of reduced imports owing to Covid.

“The percentage of people who will be affected is not huge,” Mwanthi told GBR over the phone.

“We are not big on warehousing like Uganda, so the percentage is not a big figure (of importers).”

Uganda, he pointed out, tends to warehouse goods heading for other countries in the region such as DRC, Rwanda, South Sudan among others.

But PWC said the measures could be done in a way that does not hurt legitimate business.

“Understandably, Customs is tasked with curbing illegitimate trade. However, in its efforts to ensure the proper enforcement of Customs laws and regulations, it must continually strive to facilitate legitimate trade.”

The advisory group also raised the question of public participation for the new measures before their entry into force.