Almost a year after Kenya imposed a 35 per cent duty on leather imports, the Treasury is yet to collect the tax, thanks to a tussle between importers and local manufacturers.
The duty was contained in the 2018/19 budget and forms part of the East African Community common external tariff.
Kenya increased import duty on footwear from 25 per cent to 35 per cent or $10 per unit (whichever is higher) in an effort to grow the local leather industry and protect it from unfair competition from cheap imports. But the enforcement did not to take effect after large importers lobbied for a one-year stay of application.
The duty was approved under EAC Gazette Vol. AT1-No. 008 of June 30 2018, legal notice EAC/57/2018, but was revised under EAC Gazette Vol. AT 1-No 16 of December 6 2018, legal notice EAC/170/2018, leaving Kenya Revenue Authority’s hands tied.
Large importers want to lobby for further stay of application in the 2019/2020 budget.
Now, local tanneries and manufacturers of leather, leather goods and footwear want the duty enforced.
“The government is engaging in double standards by imposing duty on leather products and failing to enforce it,” said Beatrice Mwasi, Leather Apex Society of Kenya secretary general.
KRA records show that total taxes collected from leather products from July 2018 to February 2019 stood at $5.2 million. The taxes comprised $3.2 million import duty and $1.9 million value added tax.
During the period, Kenya imported 1,834,153 kilogrammes of footwear.
The enforcement of the 35 percent duty would have seen KRA collect more import duty if the volumes of imports were maintained. In case of a decline in imports, the taxman would have seen a surge of VAT collections from increased local production.
But the importers have the support of the Kenya Association of Manufacturers, with chief executive Phyllis Wakiaga saying it aims at encouraging value addition in footwear manufacturing “and mitigating trade malpractices that are currently stifling the market share of local manufacturers . ”
Yet KAM’s Manufacturing Priority Agenda 2019 Report shows that preference for imported goods/services over locally produced goods by the government, businesses, and households are part of the reason the sector remains stunted.
“Manufacturers have to contend with heightened competition and cannot overcome these challenges without government support,” said the report, launched last month.
Charles Ndung’u, Kenya Leather Development Council head of research, standards, and policy