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.