Chinese Imports Land on Kenya’s Tax Evasion Watchlist

Chinese imports will be scrutinized more closely as President William Ruto’s administration escalates its crackdown on organizations and individuals that undervalue products transported from the Asian country, costing Kenya billions of shillings in tax income.

The Treasury intends to use the Kenya Revenue Authority (KRA) in unique collaborations with equivalent agencies in other jurisdictions to ascertain the true worth of imports carried in from China in its medium-term revenue strategy.

Kenya imports the majority of its completed goods, ranging from electronics to clothing, from China.

However, the government believes that the worth of most of these things, particularly electronics such as mobile phones and computers, has not been appropriately priced, resulting in billions of shillings in tax leakages.

The Treasury said that as part of its revenue administration measures that will be implemented during the strategy period, the government will engage with other tax authorities to determine the true worth of “high-risk imports from China,” in an effort to address the problem of misinvoicing.

“Specific tax measures to be implemented include…to establish a clear framework on the exchange of information (EOI) with other tax jurisdictions for both domestic taxes and customs to ensure the flow of information e.g. valuation of high-risk imports from China and Transfer pricing paused by multinationals,” the Treasury said in its freshly published Medium-Term Revenue Strategy for the period 2024-2027.

According to data from the Kenya National Bureau of Statistics (KNBS), Kenya imported items worth Sh452.6 billion from China in 2022, up from Sh441.4 billion the previous year.

China, renowned as the world’s factory, is the main supplier of steel products, clothing, and heavy construction trucks to Kenya.

Local producers have also complained about the importation of fake and inferior goods that are not taxed.

“Illicit trade, especially counterfeiting, undermines the value of authentic products and investments that is legitimate business is put into their brands,” said Antony Mwangi, the CEO of the Kenya Association of Manufacturers (KAM).

In 2018, the KRA declared its intention to recruit international assistance in the fight against the trade in illegal cigarettes from Europe, China, and Dubai, which has hampered the collection of excise taxes in part.

Cigarettes, perfume, and alcohol are among the goods that can be easily transformed into cash, according to tax expert Robert Waruiru.

He claimed that the KRA forbids a merchant from maintaining a warehouse for such products.

“You bring them into the country, you pay taxes upfront,” said Mr Waruiru.

He pointed out that the government’s target, high-risk Chinese items can possibly be those that are not fully declared.

All traders, even those who transport their goods using a cargo consolidator, have already been told by the KRA to pay taxes on each item in their cargo and get it cleared within 21 days, failing which, it will be put up for auction.

Most of the products impacted by this order are imports from China, including electronics and used clothing.

Since taxes on consolidated cargo are now paid per kilogram, there is a chance for misbilling, which has resulted in the State losing billions of shillings in revenue.

An earlier investigation by a local daily revealed that the KRA’s official data for the first 10 months of last year did not include Chinese imports valued at Sh431.9 billion, raising questions about the scope of tax evasion during the election year.

The value of imports from the Asian economic powerhouse differs significantly, according to a review of official trade data that was issued separately by the tax authorities of the two countries.

The KNBS issued official KRA data that put the value of imports from China at Sh377.5 billion during the review period.

The General Administration of Customs of the People’s Republic of China (GACC), the counterpart of the Kenya Revenue Authority (KRA), claims on its website that the value of the items exported from China to Kenya during this time was Sh809.4 billion, more than twice the amount provided by the KRA.

Because commodities imported into China are subject to a variety of taxes, including import duty, value-added tax (VAT), excise duty, import declaration fees (IDF), and the railway development levy (RDL), this enormous difference also raised concerns about the amount of taxes collected on those imports.