New 2.5pc duty to raise price of EPZ local sales

Majority of firms in the EPZ are in textiles and apparels and largely exports to the US. FILE PHOTO | NMG 

By GEOFFREY IRUNGU
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Summary

• The new measure will ensure compliance with the rule that EPZs must sell at least 80 percent products in global markets.
• It also points to the poor administration of the existing legal provisions that restrict companies from diverting goods to the local market.
• The 80:20 rule is, however, currently suspended because of the coronavirus pandemic but the Treasury is proposing to make it more stringent once normal business resumes.

The Treasury has imposed an extra 2.5 percent duty on local sales from the Export Processing Zones (EPZs) amid growing suspicion of diversion into the Kenyan market.

The new measure will ensure compliance with the rule that EPZs must sell at least 80 percent products in global markets.

It also points to the poor administration of the existing legal provisions that restrict companies from diverting goods to the local market.

It shows that the Treasury is not satisfied with the level of compliance to increase the country's exports.

"The Bill proposes to charge an additional duty at a rate of 2.5 percent of the customs value in respect of goods entered for home use from an export processing zones enterprises. [The] zones must export at least 80 percent of their production but in practice it is believed they have been flouting this rule and allowing goods to enter the Kenyan market,” said Bowmans Kenya in an opinion on the 2020/21 Finance Bill.

The 80:20 rule is, however, currently suspended because of the coronavirus pandemic but the Treasury is proposing to make it more stringent once normal business resumes.

“In any event, a temporary stay on the 80:20 rule is currently in place with the pandemic affecting the country. This measure is designed to ensure compliance with the 80 per cent export rule," Bowmans Kenya said.

Audit and advisory firm KPMG Kenya said the goods will become more expensive —given all the other taxes paid for them — even though they have unfettered access to the local market as long as they account for all the duties.

“The duty is in addition to custom duties applicable on the products from the EPZs for home use. Recently, the government has opened up the local market for the EPZ enterprises whose export markets have been negatively impacted by the Covid-19 pandemic.

“The additional duty will make EPZ products more expensive given that Special Economic Zones have unfettered access to local markets once they account for custom duties on products.”