Kenya is on the spot for waiving import duty on edible oil against the East African Community common external tariff rules.
The Kenya Association of Manufacturers (KAM) has decried the decision by the government to allow importation cooking fat and oil duty-free for one year, despite the existence and implementation of the EAC-CET trade regime, which puts imported finished goods such as edible oil in a tax band that attracts a 35 percent import duty to encourage and promote local producers.
The EAC Finance Ministers adopted the 35 percent 4th Band of the EAC-CET on May 5, 2022, with the implementation date of July 1, 2022.
The four bands of the CET are raw materials attracting a zero percent duty, intermediate goods (10 percent), secondary intermediate goods (25 percent) and finished goods (35 percent).
Among the products that fall in the fourth band are edible oils, iron and steel, dairy and meat products, cereals, cotton and textiles, and beverages and spirits.
In a letter dated January 23, 2023 addressed to Cabinet Secretary for Trade Moses Kuria and signed by CEO Anthony Mwangi, the manufacturers lobby said: “KAM’s attention has been drawn by the traders’ alleged importation of finished edible oil at a preferential import duty regime for further bulk breaking into the retail market in Kenya. On behalf of our processing industry members, these allegations are of grave concern to the local manufacturing fraternity if confirmed to be true.”
Fraudsters called out
But Mr Kuria, in his defence, said the waiver was necessary to cushion Kenyans against the high cost of living. He accused some of the manufacturers of importing edible oil and then repackaging it as locally manufactured products.
“The issue is not cheap imports, it is: are we importing stuff that is available locally? Some of the so-called manufacturers have been importing and posing here as manufacturers. This is driving our country back into poverty.”
“We are talking about an effective manufacturing industry that can create jobs,” said Mr Kuria. “However unpopular it is, I will continue with this campaign. Five companies continue to import edible oil and repackage it, knocking out all others from the business. I will deal with them squarely.”
Detrimental to manufacturers
KAM chairman Rajan Shah said while they appreciate and applaud the government’s efforts to reduce the cost of living, the importation of edible oil duty-free is detrimental to manufacturers.
“As a responsible business membership organisation with over 1,200 members in the manufacturing sector, KAM wrote to the Ministry of Trade, Investment and Industry on January 23, 2023, seeking clarification on the duty-free importation of finished and refined manufactured goods,” said Shah in a statement to the media.
“While we continue engaging the government, we are concerned by the plan to import duty-free products, including 125,000MT of finished and refined edible fats/oils through the Kenya National Trading Corporation for a period of one year to ostensibly create a price stabiliser for essential household commodities and alleviate the current drought situation in Kenya.”
Gazette notice
KAM cites an EAC gazette notice of June 30, 2018, which assigned refined edible oils to the Sensitive Goods category.
“Kenya therefore put a stay order of the EAC-CET of 25 percent and applied a rate of 35 percent or $500/tonnes, whichever is higher. The stay order was subsequently extended,” KAM said.
“Fellow EAC countries have followed suit, with a similar stay order recognising the impact the policy has on promoting local industry.”
According to the association, the rationale of the EAC gazette notice was that undervalued goods from subsidised imports were penetrating the market and had grown 30 percent, thus the new two-way tariff (volume and value) made it difficult for illicit products to enter the regional market.
KAM says that to bring down the prices of essential commodities the EAC rules should be adhered to, and the government should give similar waivers to other importers and keep jobs intact.
Executive order
“This move will therefore promote unfair competition to local industries and the government stands to lose revenue to the tune of Ksh3.5 billion and put over 40,000 jobs on the line,” KAM said.
The association said edible oil in Kenya is a multimillion-dollar investment.
“The sector with a combined installed capacity of 7,160MT generates over Ksh52 billion ($412 million) in revenue for the government annually through taxes. In addition, the sector directly employs 10,000 employees and over 30,000 indirectly across the value chain.”
It all started with a November 15, 2022 memo by Secretary to the Cabinet Mercy Wanjau giving Kenya National Trading Corporation (KNTC) the mandate to import essential commodities to stabilise prices.
“The purpose of the memorandum was to seek the approval of the Cabinet for KNTC to import essential commodities (maize, beans, rice, sugar, wheat, soya, and cooking oil/fat) and fertiliser as an interventionary measure to lower the current cost of living,” said the letter.
Exemption of duty
And on November 20, 2022, the Cabinet Secretary for National Treasury Prof Njuguna Ndung’u wrote to Kenya Revenue Authority Commissioner-General Githii Mburu ordering the exemption of duty on 150,000 tonnes of cooking fat, 200,000 tonnes of sugar, 800,000 tonnes of beans and 25,000 tonnes of wheat.
A gazette notice dated November 21 bore executive order No. 2 of 2022, establishing the National Steering Committee on Drought Response. It is on the strength of that notice that Trade Minister Kuria based his decision to waive duty on edible oil.
But KAM argues that the increased cost of edible oils in the country is due to internal and external factors that make the cost of producing finished products higher.
“To make edible oil products affordable in the wake of the increased cost of living, we urge the National Treasury to waive the two percent nut and oil levy, remove IDF and RDL, review port charges and reduce the cost of electricity,” KAM said.
