On 30 June 2024, the East African Community Council of Ministers (the Council of Ministers) published Gazette Notice Volume AT 1 – No. 18 (the Gazette Notice) whose effect is to impose customs duties on certain products imported into Kenya that were previously not subject to duty or vary the customs duties applicable on certain imports. The changes are with effect from 01 July 2024.
The varying of the applicable customs duty rates is in exercise of the powers granted to the Council of Ministers by article 12 (3) of the Protocol on the Establishment of the East African Community Customs Union (the Protocol). The Protocol gives the Council of Ministers powers to review the common external tariff (Common External Tariff) structure to mitigate any adverse effects that a member state may experience as a result of the implementation of the harmonised Common External Tariff structure.
Generally, the changes in the Gazette Notice have the effect of increasing the rate of customs duties on finished goods while granting remission of customs duties on raw materials and inputs for the local manufacture of goods. Below is a summary of the notable changes in the Gazette Notice:
1. Stay of application of the rates set out in the Common External Tariff
Pursuant to the Gazette Notice, the customs duties rates as set out in the Common External Tariff will not be applicable for the following products imported into Kenya, instead, the customs duties rate applicable will be as follows:
|
Item Description |
Rate that was previously applicable (per the Common External Tariff or previous stay of application) |
Rate applicable to Kenya for the next year (till 30 June 2025) pursuant to the Gazette Notice |
Implication |
|
Customs duties are applicable at the higher of 75% of the customs value of the imported rice or USD 345 per metric tonne of imported rice. |
Customs duties will be applicable at the higher of 35% of the customs value of the imported rice or USD 200 per metric tonne of imported rice. |
Kenya’s consumption of rice has consistently outstripped the local production capacity. This has meant that Kenya has to import rice into the country to satisfy the local demand. Accordingly, the application of the lower customs duty rate is beneficial as it will lead to a lower cost of the imported rice. |
|
Television sets of HS code 8528.72.90 |
Customs duties are currently applicable at the rate of 25% of the customs value. |
Customs duties will be applicable at the rate of 35% of the customs value. |
The higher customs duty rate will inevitably lead to higher landed costs of the television sets. This measure seems to be in line with the government’s objective of discouraging the importation of finished products. However, Kenya does not yet have the capacity to manufacture television sets to satisfy the local demand which means that Kenyans will most likely have to incur more costs for the purchase of television sets. |
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Mobile phones under HS codes 8517.13.00 and 8517.14.00
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Per the Common External Tariff, customs duties are not applicable on the importation of mobile phones. However, due to a previous stay, customs duties have been applicable at the rate of ten per cent (10%) of the customs value. |
Customs duties will be applicable at the rate of 25% of the customs value. |
In the past year ending on 30 June 2024, Kenya had stayed the customs duty rate of 0% and instead applied the customs duty rate of 10%. Accordingly, the application of the customs duty rate of 25% will lead to a higher landed cost of mobile phones. This proposal seems to be in line with the government’s objective of reducing the importation of finished products. However, questions still arise as to whether Kenya has sufficient capacity to manufacture mobile phones to meet the local demand. |
|
Baby diapers under HS code 9619.00.90 |
Customs duties are applicable at the rate of 25% of the customs value. |
Customs duties will be applicable at the rate of 35% of the customs value. |
This change will lead to a higher cost of baby diapers further increasing the cost of living in the country. |
|
Crude palm oil under HS code 1511.10.00 |
Customs duties are not applicable on the importation of crude palm oil. |
Customs duties are not applicable at the rate of 10% of the customs value of the imported crude palm oil. |
Kenya imports crude palm oil for the purpose of manufacturing cooking oil for local consumption. Accordingly, the applicability of customs duty at the rate of 10% will inevitably lead to a higher landed cost of the crude palm oil which will be passed on to the consumers. |
|
Containers for compressed or liquefied gas made of iron or steel under HS code 7311.00.00 |
Customs duties are not applicable on the importation of the containers. However, due to a previous stay, customs duties have been applicable at the rate of 25% of the customs value. |
Customs duties will be applicable at the rate of 35% of the customs value of the containers |
This measure seems to be in line with the government’s objective of discouraging the importation of finished products that can be manufactured locally.
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2. Duty remission on raw materials and inputs for the manufacture of garments and other textile-made-up products
In a bid to spur the growth of the local textile industries, the Council has granted remission of duty to various raw materials and inputs used in the manufacture of goods. The notable items are summarised as per the table below:
|
Item Description |
Rate applicable under Remission |
Implication |
|
Inputs for the assembly/manufacture of mobile phones |
Duty remission is to apply at a duty rate of 0% of the customs value for the inputs imported for the manufacture and assembly of mobile phones. |
Remission of duty on such inputs will incentivise the local assembly of mobile phones. This proposal is in line with the objective of the government to promote the local production of mobile phones. |
|
Inputs for the assembly of televisions |
Duty remission is to apply at a duty rate of 0% of the customs value for the inputs imported for the assembly of televisions. |
Remission of duty on such inputs will incentivise the local assembly of television sets. This proposal is in line with the objective of the government to promote the local production of television sets. |
|
Inputs for the manufacture of wiring harnesses for vehicles and motorcycles |
Duty remission is to apply at a duty rate of 0% of the customs value for the inputs imported for the manufacture of wiring harnesses for vehicles and motorcycles.
|
Remission of duty on such inputs will incentivise the local manufacture of wiring harnesses for vehicles and motorcycles. |
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Inputs for the assembly/ manufacture of smart telecommunication devices including laptops and tablets |
Duty remission to apply at a duty rate of 0% of the customs value for the inputs imported for the manufacture of smartphones, laptops, and tablets.
|
Remission of duty on such inputs will incentivise the local assembly of smartphones, laptops, and tablets. This proposal is in line with the objective of the government to promote local production. |
3. Increase in the maximum limit for passengers’ baggage and personal effects exempted from customs duty
The Gazette notice has increased the maximum limit for passengers’ baggage and personal effects that is exempted from customs duty from United States Dollar five hundred (USD 500) to United States Dollar two thousand (USD 2,000) per traveller. This change is a reprieve to passengers arriving into the EAC and addresses complaints that arose following the strict implementation of this provision by the Kenya Revenue Authority (KRA).
Frequently asked questions (FAQs)
- How have the changes in import duties been legally effected?
Pursuant to the Gazette Notice, Kenya has obtained a stay on the applicability of the custom duties rates set out in the Common External Tariff and requested that instead, the custom duties rates highlighted above apply.
The Common External Tariff is integral to the functioning of the customs union since it provides for four (4) band tariffs with a minimum custom duties rate of 0% and a maximum custom duties rate of 35% applicable on all products imported into the East African Community. Depending on the product, the rate of customs duties set in the Common External Tariff applies when the product is imported into any of the East African Community Partner States unless a Partner State applies to have the rate set aside, as Kenya has done, so as to apply higher rates.
- Is the Gazette Notice an attempt to reintroduce tax measures that were contained in the Finance Bill 2024 that has since been withdrawn?
No. The changes contained in the Gazette Notice had been made public in the official budget speech read by the Cabinet Secretary for Finance and Economic Planning. In his speech, the Cabinet Secretary stated that as part of the pre-budget consultations, the Council of Ministers had agreed that there was a need for certain measures to enhance the competitiveness of locally manufactured products. The measures read out in the budget statement are the same measures that were adopted in the Gazette Notice.
Accordingly, these measures were going to be introduced, in addition to the changes proposed in the Finance Bill 2024.
- Can the Government of Kenya procure an amendment of the Gazette Notice to withdraw the changes in the Gazette Notice?
Pursuant to the Treaty for the Establishment of the East Africa Community (the EAC Treaty), Kenya could request an extraordinary meeting of the Council of Ministers and in such a meeting, Kenya would table the proposal that the changes be withdrawn. It is, however, noteworthy, that a withdrawal of the changes would require a consensus of the Council of Ministers.
- Was the Gazette Notice subject to public participation?
No. Based on the official budget speech read by the Cabinet Secretary responsible for Finance and Economic Planning, the Gazette Notice was a product of deliberations by the Council of Ministers. Accordingly, the Gazette Notice was not subjected to public participation.
- Can the Gazette Notice be challenged on the basis that there was no public participation?
The decisions made by the Council of Ministers could be challenged before the East African Court of Justice (EACJ).
Article 30 of the Treaty provides that any person who is a resident in a Partner State may refer any regulation, directive, or decision of an institution of the East African Community to the EACJ for determination as to whether such regulation, directive or decision infringes the provisions of the Treaty.
Further, we note that the EAC Treaty provides for popular participation in the achievement of the objectives of the EAC through the involvement of the Parliaments of the respective Partner States. The EACJ has also emphasised the importance of public participation in conducting the affairs of the EAC.
Despite the above, we note that from the Treaty, and the Protocol, the Council is not required to seek the approval of any other body before undertaking measures such as staying the applicability of the Common External Tariff rates. Accordingly, it may be quite a challenge for a person to seek the suspension of the Gazette Notice on the basis that it infringes the provisions of the Treaty.
Conclusion
Generally, the changes in the Gazette Notice have the effect of increasing the custom duty rate on finished goods while granting remission of custom duty on raw materials and inputs for the local manufacture of goods. While this is a noble intention by the Council of Ministers, it will lead to an increase in the cost of imported finished goods for the foreseeable future, which will further pile pressure on the cost of living.
