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Kenya Revenue Authority Commissioner-General John Njiraini announces the implementation of a common customs and transit cargo control framework to rid Mombasa port of corruption

Four East African countries on Tuesday agreed to fast-track implementation of a common customs and transit cargo control framework to enhance regional trade.

Commissioners-general from the Kenyan, Ugandan, Rwandan and Tanzanian revenue authorities said adoption of an excise goods management system would curb illicit trade in goods that attract excise duty across borders.

They said creation of a single regional bond for goods in transit would ease movement of cargo, with taxation being done at the first customs port of entry.

The meeting held in Nairobi supported formation of the Single Customs Territory, terming it a useful measure that will ease clearance of goods and reduce protectionist tendencies, thereby boosting business.

Implementation of the territory is being handled in three phases; the first will address bulk cargo such as fuel, wheat grain and clinker used in cement manufacturing.

Phase two will handle containerised cargo and motor vehicles, while the third will deal with intra-regional trade among countries implementing the arrangement.

The treaty for establishment of the East African Community provides that a customs union shall be the first stage in the process of economic integration.

Kenya Revenue Authority (KRA) commissioner-general John Njiraini said the recently introduced customs and border control regulations were designed to enhance revenue collection and beef up security at the entry points.

“At KRA, we have commenced the implementation of a number of revenue enhancement programmes particularly on the customs and border control front that will address security and revenue collection at all border points while enhancing swift movement of goods,” he said.

To address cargo diversion cases, the regional revenue authorities resolved that a joint programme be rolled out to reform transit goods clearance and monitoring processes. Source: DailyNation (Kenya)

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East%20Africa%20mapIn the spirit of stronger East African integration, the revenue authorities of Kenya, Uganda and Rwanda have started preparations for the implementation of a Single Customs Territory. The Commissioners’ General of the three East African countries deliberated on the mechanisms to operationalize the decisions of the heads of state who have continuously called for its fast tracking.

On June 25, 2013 at the Entebbe State House in Uganda, a Tripartite Summit involving the three heads of state issued a joint communiqué directing among other things the collection of customs duties by Uganda and Rwanda before goods are released from Mombasa. The leaders also agreed that traders with goods destined for warehousing should continue executing the general bond security.

During the meeting, the Commissioners’ General of the three countries put in place joint technical committees on ICT, Business Process, enforcement, change management, legal and human resource to discuss the implementation road map.

In a statement signed by the three Commissioners’ General, they said that the development of a Single Customs Territory will positively impact on the trading activities of the three countries as it will ensure that assessment and collection of taxes is done at the country of destination before cargo moves out of the port.

“As a result, the East African Community Customs Union will join the ranks of other Customs Union such as South African Customs Union and the European Union among others. Under this arrangement, restrictive regulations are eliminated as the corridor is now considered for customs purposes. For clarity, circulation of goods will happen with no or minimal border controls,” reads the statement in part.

Kenya said it would cut red tape holding up millions of dollars of imports into its landlocked neighbours Rwanda and Uganda, by letting the countries collect customs on goods as they arrive in its port at Mombasa. Goods can currently face long delays as agents process the paperwork to release cargoes from warehouses at east Africa’s biggest port, and later make separate arrangements to pay import duties at Kenya’s borders with Uganda and Rwanda.

Officials said the new system, due to be introduced in August, would clear inefficiencies and blockages seen as a major barrier to trade in the region. But clearing agents in Kenya said it could also cost thousands of jobs in warehouses, freight firms and almost 700 clearing and forwarding companies operating in the country.

Kenya, Uganda and Rwanda, together with Burundi and Tanzania, are members of the regional East African Community trade bloc, with a joint gross domestic product of $85 billion.

Kenyan tax officials said the new system would allow a “seamless flow of goods” and make it easier to stop goods getting through the system without customs payments. “Once cleared at the port, there will be no stoppages at borders and checkpoints along the corridor,” the Kenya Revenue Authority’s commissioner of customs, Beatrice Memo, told a news conference.

Under the system, Rwandan and Ugandan clearing agents and customs officials would be able to set up their own offices to clear cargo and collect taxes directly at the port. The Kenya International Freight and Warehousing Association said that meant up to half a million jobs could be lost to Uganda and Rwanda. “The Government has not consulted us … and we totally reject it,” said  Association chairman Boaz Makomere. Sources: East African Business Week (Kenya) & The New Vision (Uganda).

Uganda, Malaba border crossing

Uganda, Malaba border crossing

The New Vision (Uganda) reports on a draft law which will punish countries that fail to implement agreed upon mechanisms to eliminate trade barriers has been submitted at the regional Parliament.

Jose Maciel, the TradeMark East Africa director of trade facilitation, noted that while most of the non-tariff barriers (NTBs), including road blocks and corruption have slightly declined, the proposed law in the East African Legislative Assembly, if enacted, would create the possibility of sanctions against stubborn states that do not enforce the check points. “It is important to give teeth to the system. We need to make it possible to impose sanctions for countries that do not eliminate NTBs,” said Maciel.

He was speaking at a Kenya Ports Authority (KPA) organised meeting with EAC media in Mombasa. TradeMark is a trade facilitating agency operating in the five states of East Africa. Maciel said non-tariff barriers like road blocks, which are easy to eradicate, are some of the biggest impediments to East Africa’s competitiveness.

States are not the only defaulting party to agreed upon positions on eliminating NTBs. P.J. Shah, a Mombasa entrepreneur, for instance notes that while Mombasa began 24-hour operations about three years ago, other agencies like banks and shipping lines are not operating 24 hours. The poor infrastructure such as rail and water systems, whose potential is yet to be optimised, also increase trade costs. Other NTBs include weighbridges and corrupt state enforcement agencies.

Regional trade experts and facilitation agencies such as Trade Mark East Africa agree that NTBs are known, and numerous researches have been done about them and their impact on trade. Although some efforts have been made to eradicate or reduce the salient ones such as road blocks, overall NTBs remain a major trade impediment.

Two thirds of goods are shipped in containers. TradeMark estimates that 20% of annual shipments face NTBs. TradeMark is also targeting to work with regional governments to harmonise 20 standards in a year, amongst the other efforts at making EAC more competitive.

During the Mombasa meeting, it was agreed that because sometimes there seems to be no communication between the different government agencies such as the Kenya Revenue Authority (KRA) and KPA, hinterland states suffer.

There should be a single authority that oversees them all and ensures enforcement. There are about 24 road blocks between Mombasa and Uganda’s border and another 21 in Uganda, four in Burundi and two in Rwanda. There are also 12 weighbridges in Kenya, five in Uganda and two in Rwanda.

“A well run efficient port can help shape economic growth and performance of the economy,” said Antony Hughes, a TradeMark official.

Mombasa handles about 20 million tonnes of cargo, 85% destined for Uganda and other hinterland states. Transit states always suffer the biggest brunt of NTBs and poor flow of information regarding imminent disruptions at the border. This was witnessed during the recent cash bond imposed by KRA that caught Uganda traders unaware, leading to massive clog ups of cargo and huge loss of value.

Comment: It appears that regional bodies such as the EAC are to get extraordinary powers to enforce rules over sovereign states. Would be interesting to learn whether these member states voted for such action, or if it is rather the ideal and persuasion of ‘foreign’ interests.

Ugandan importers say they intend avoiding using the Port of Mombasa in Kenya in favour of Tanzania’ Dar es Salaam in future, because of unresolved issues with the Kenyan taxman.

Some 600 containers destined for Uganda are being held at the Kenyan port following the introduction of a cash bond tax. The chairman of the Kampala Traders Association announced last week that the association had resolved to suspend using Mombasa in the interim, reports New Vision (Kampala).

In addition, importers say they will take legal action against the Kenya Revenue Authority (KRA) which has issued a directive instructing importers to lodge either a cash bond equivalent to the value of the imported goods or a bank guarantee to the same value. This must be deposited before the goods being imported can be cleared.

The directive has affected not only the 600 containers waiting at the port but imports of motor vehicles and sugar.

Uganda’s trade minister, Amelia Kyambadde said she had been informed by the Uganda business community that the KRA, under notice CUS/L&A/LEG/1 had made a unilateral decision on a requirement for a cash bond or bank guarantee on transit sugar and motor vehicles above 2000cc.

Ugandan authorities say the action by the KRA directive constitutes another non-tariff barrier imposed by Kenyan authorities on its transit cargo and contravenes East African Community Customs Union protocol and decisions reached by the Council of Ministers in March 2012 on removal of non-trade barriers in the community.

“If Kenya needs an instrument to regulate regional trade in sugar and other products, a cash bond is not the instrument to apply,” said Kyambadde. Sources: Ports.co.za / New Vision (Uganda).

Is the time for a regional transit bond nigh? Given prevailing draconian measures to ensure security and surety, the message is clear that customs brokers, freight forwarders or clearing agents need to demonstrate financial security over and beyond what they are accustomed to. Question – is the transit business lucrative for agents? Why not refuse the business – its just not worth the risk.

A requirement by the Kenya Revenue Authority demanding that all imported transit vehicles above 2000cc be cleared against cash bonds or bank guarantees has been opposed by clearing agents in Mombasa. The agents, under their umbrella Kenya International Freight and Warehousing Association, have threatened not to pay taxes if the regulations are not withdrawn by the tax collector. The agents said that the stringent measures by KRA may stifle trade in the region and may also see the port of Mombasa losing some foreign importers to the port of Dar es Salaam in Tanzania. “We as clearing agents cannot pay the bonds for the importers”.

On August 31, KRA directed all clearing agents that with effect from September 1, all transit vehicles exceeding 2000cc would be cleared against a cash bond or bank guarantees paid by the agents. The forwarders also said that Uganda, Rwanda and DR Congo business class was considering ditching Kenya as an import avenue for Dar es Salaam port. Source: The Star (Nairobi)

Delegates from at least 20 African Customs Administrations met in Pretoria, South Africa between 13 and 15 August to advance developments towards a common framework and approach to IT inter-connectivity and information exchange in the region. Convened by the SADC secretariat in consultation with COMESA and Trademark Southern Africa (TMSA), the three day work session focussed on uniform acceptance of the WCO‘s Globally Networked Customs (GNC) methodology, regional awareness of customs developments in the Southern and East African region, as well as joint agreement on customs data to be exchanged between the member states.

Mauritius Revenue Authority (MRA) shared its experience with delegates on the launch of its Customs Enforcement Network (CEN). Kenya Revenue Authority will soon be sharing enforcement information with its MRA counterpart. At least 22 African countries are expected to link up with the CEN network over a period of time. Customs enforcement information is the second pillar of the WCO’s GNC information exchange methodology; the first pillar being Customs information exchange. The latter provides for a holistic approach to the dissemination of common customs data derived from supply chain exchanges, for example declaration information, cargo information, and AEO information to name but a few. This information is vital for trading countries to administer advance procedures and better validate the information being provided by the trade.

Rwanda Revenue Authority introduced it’s RADDex programme which is a web-based IT solution for the exchange of cargo manifest information between participating states in the East African Community (EAC) – see related article below.

SADC and COMESA are rallying their members to participate in the initiative. At the current juncture, various member states have expressed keen interest to participate. While the regional intention is the linking of all customs administration’s electronically, initial developments envisage bi-lateral exchanges between Customs administrations which are ready to engage. The importance of the adoption of the GNC methodology is to ensure that customs connectivity and information exchange is harmonised and consistent across the Southern and East African region irrespective of whether countries are ‘early adopters’ or not.

The government has proposed a separation of the customs department from the Kenya Revenue Authority in a bid to facilitate faster movement of goods.

Despite efforts by the revenue body to reform its operations especially through technology the finance minister Njeru Githae proposed creation of an autonomous Customs Services body.

This comes as the country moves to fully implement the East Africa Common Market Protocol. “To realign the operations of our Customs with this Protocol and to mainstream its critical role of trade facilitation and border controls, the Kenya Revenue Authority will be rationalised with a view to establishing the Customs Services as an autonomous entity on its own,”said the minister in his budget speech yesterday.

He said the Government will soon commence a process to consolidate all existing cargo related standard enforcement agencies into one single entity expected to reduce bureaucratic inefficiency in cargo clearance.

Deloitte tax expert, Andrew Oduor lauded the move saying customs has been a very problematic area in the country with the systems inefficient. “it hoped that establishment of the autonomous entity is going to help streamline the operations and that is going to resolve this issues,” he said. Source: The Star (Nairobi)

Comment: In effect, this seems no more than a move to create an autonomous border management agency. Unfortunately consolidating various agencies is not going to make customs any more efficient. As seems to be the case elsewhere across the globe where this method of ‘consolidation’ has been introduced, deep-seated discontent has often arisen with the former ‘ areas of expertise’ of individual authorities being lost forever. What results is a mongrelised agency fit more for political expedience rather than improved ‘efficiency and facilitation’. Good luck anyway.