Plainclothes police inspect some of the imported industrial sugar at a
shop in Mwembe Tayari, Kenya, on September 20, 2008. FILE PHOTO | NMG
Kenya’s plans to start producing refined sugar for industrial
use is facing hurdles because the country lacks raw sugar, the main raw
material.
The EastAfrican has also learnt that
the cost of producing raw sugar in Kenya is very high, while importing
the product under the EAC duty remission scheme would limit the sales of
the finished products in the Kenyan market.
Exports to
EAC partner states would attract a duty of 25 per cent as per the EAC
Rules of Origin provision, making Kenyan confectioneries uncompetitive
in the region.
Solomon Odera, head of the Sugar
Directorate at the Agriculture and Food Authority, said that the
unavailability of raw sugar stands in the way of Kenya’s journey to
becoming East Africa’s first state to produce industrial sugar.
Kibos
Sugar and Allied Industries, a miller that was granted a permit nearly
three years ago to start producing 30,000 tonnes of industrial sugar
annually, has not started production, largely due to lack of raw sugar.
The
miller set up a Ksh2 billion ($20 million) plant with a capacity to
output 150,000 tonnes of refined sugar per year, but it has remained
dormant.
Kenya has been hesitant to allow importation of raw sugar for
the production of industrial sugar, after some millers allegedly abused
the facility by diverting the commodity into the local market.
In
2017, Kenya imported 159,000 tonnes of refined sugar, according to data
from the Kenya Sugar Directorate, despite the EAC Council of Ministers
allowing the country’s industrial sugar manufacturers to import raw
sugar under the duty remission scheme of 0 per cent on condition that
the finished products be not sold in the EAC.
The one-year preferential tax treatment started on July 1, 2017, and expired on June 30, 2018.
Under
the EAC Rules of Origin, Kenyan confectionery firms could export the
end product to other EAC partner states duty-free if the raw sugar used
in the manufacture of industrial sugar was sourced locally.
“If
these products are exported to the region, they will attract a duty of
25 per cent,” said Eliazar Muga, managing director of MAP Advisory
Services.
In April, Uganda and Tanzania imposed a 25
per cent tax on Kenya-made chocolates, ice cream, biscuits and sweets,
citing use of imported industrial sugar.
The two
nations’ revenue authorities accused Kenyan manufacturers of tilting
competition in their favour by using industrial sugar imported under a
10 per cent duty remission scheme.
Kenya, however,
argued that confectionery products made of industrial sugar imported
under the EAC duty remission scheme should not be subjected to Customs
taxes.
The protocol for the establishment of the East
African Community Customs Union provides that goods whose inputs have
benefitted from duty waivers be sold outside the EAC and, in the event
that such goods are sold in the EAC Customs territory, they should
attract duties, levies and other charges provided in the Common External
Tariff (CET).
It also provides that the sale of goods
in the territory be limited to 20 per cent of the annual production of a
company and that these goods attract duty as provided in the CET.
According
to the EAC Secretariat, products manufactured using industrial sugar
imported under the EAC duty remission scheme qualify for preferential
tax treatment in partner states only when they meet the conditions set
under the EAC Rules of Origin and any other conditions under the East
Africa Community Customs Management Act 2004.
These
conditions include the fact that preferential tax treatment will be
granted to goods whose inputs have been sourced locally.
Under
the region’s three-band CET, imports of finished products from
countries outside the bloc attract a duty of 25 per cent; 10 per cent
for intermediate goods and zero per cent for raw materials and capital
goods.
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