The Treasury has revoked a controversial new tax on imported shoes, bringing relief for traders who had reported a drastic jump in the cost of shipments.
Treasury Cabinet Secretary Ukur Yatani, in a letter to the Kenya Revenue Authority (KRA), suspended the new tax of up to $1.5 (Sh164.4) per pair of shoes imported into the country and reverted to the older tax of 25 percent per consignment that saw importers pay Sh2 million per 40-feet container of footwear.
Shoe importers had from July 1 started paying the new duty at the rate of $1.5 per pair for leather shoes and $1 per pair for sports shoes, a move that was aimed at protecting the local leather industry.
The new tax increased the cost of imported shoes and reduced their attractiveness in the local market, as traders passed the increased cost to consumers already weighed down by the economic fall-out of the coronavirus.
Importers protested the new tax saying that it had increased import duty for a 40-feet container to Sh8 million from Sh2 million.
“After due consideration of the matter, the National Treasury has decided to revoke the specific rates of duty on imported shoes and apply the applicable Common External Tariff rate of 25 percent,” Mr Yatani said in the August 16 letter to KRA Commissioner-General Githii Mburu.
“In the meantime, KRA should allow importers to pay import taxes, levies, and fees amounting to Sh2 million per a 40-feet container up to August 31, 2021.”
The duty, which is part of the common external tariff charged by the six-member East African Community, was aimed at protecting the local leather industry from the international brands.
Mr Yatani’s move to suspend implementation of the new tax came days after the Senate demanded an explanation from the KRA and recommended investigation by the relevant House Committee of what it appeared as double taxation.
The new tax was approved by the EAC Council of Ministers in May and gazetted on June 30, 2021, paving the way for their collection from the start of last month.
But Kenya sought a stay of application to apply higher import duty rates on footwear and other products to protect locally manufactured goods from unfair competition arising from cheap imports.
The move was also aimed at boosting job creation in manufacturing, which is one of the four pillars of President Uhuru Kenyatta’s Big Four Agenda ahead of his exit next year.
The Senate observed that while the new tariff was to be implemented by all the six EAC states, only the KRA had implemented it, making local importers lose out to their regional counterparts.
Mr Yatani in the letter to the KRA said that the Treasury would foot the shortfall where the application of the Sh2 million duty per 40-feet container results in a deficit.
The new tax was in addition to protecting the local leather industry set to increase the taxman’s collections from import duty, boosting revenues at a time the Covid-19 pandemic has disrupted revenue streams.
The KRA targets Sh119 billion from import duty in the year to next June as it seeks to raise Sh1.776 trillion in ordinary revenues for the year.