Almost a year after Kenya imposed a 35 per cent duty on leather imports, the Treasury is yet to collect the tax, thanks to a tussle between importers and local manufacturers.
The duty was contained in the 2018/19 budget and forms part of the East African Community common external tariff.
Kenya increased import duty on footwear from 25 per cent to 35 per cent or $10 per unit (whichever is higher) in an effort to grow the local leather industry and protect it from unfair competition from cheap imports. But the enforcement did not to take effect after large importers lobbied for a one-year stay of application.
The duty was approved under EAC Gazette Vol. AT1-No. 008 of June 30 2018, legal notice EAC/57/2018, but was revised under EAC Gazette Vol. AT 1-No 16 of December 6 2018, legal notice EAC/170/2018, leaving Kenya Revenue Authority’s hands tied.
Large importers want to lobby for further stay of application in the 2019/2020 budget.
Now, local tanneries and manufacturers of leather, leather goods and footwear want the duty enforced.
“The government is engaging in double standards by imposing duty on leather products and failing to enforce it,” said Beatrice Mwasi, Leather Apex Society of Kenya secretary general.
KRA records show that total taxes collected from leather products from July 2018 to February 2019 stood at $5.2 million. The taxes comprised $3.2 million import duty and $1.9 million value added tax.
During the period, Kenya imported 1,834,153 kilogrammes of footwear.
The enforcement of the 35 per cent duty would have seen KRA collect more import duty if the volumes of imports were maintained. In case of a decline in imports, the taxman would have seen a surge of VAT collections from increased local production.
But the importers have the support of the Kenya Association of Manufacturers, with chief executive Phyllis Wakiaga saying it aims at encouraging value addition in footwear manufacturing “and mitigating trade malpractices that are currently stifling the market share of local manufacturers.”
Yet KAM’s Manufacturing Priority Agenda 2019 Report shows that preference for imported goods/services over locally produced goods by the government, businesses and households is part of the reason the sector remains stunted.
“Manufacturers have to contend with heightened competition and cannot overcome these challenges without government support,” said the report, launched last month.
Charles Ndung’u, Kenya Leather Development Council head of research, standards and policy, says that the introduction of the tax was necessary to reduce the high volumes of imports and give room for local companies to grow.
“We must reduce dependence on imported footwear. This will make it easier for our manufacturers to grow,” he said.
He added that while countries like China, India and Turkey have been the main source of leather products imports, the volume of imports from Ethiopia continue to increase significantly every year.
In about a decade, Ethiopia has managed to build a vibrant leather industry with earnings from exports growing substantially from $67 million in 2005 to $115.4 million in 2017.
In Kenya, the government has identified the leather subsector as an important factor in driving the growth of the manufacturing sector, which forms part of the Big Four Agenda.
It has also engaged fiscal measures to ensure hides and skins are fully processed locally through 5,000 cottage industries set up to produce 20 million pairs of shoes locally.
If this comes to pass, the industry will be generating $500 million from exports of value-added leather, leather goods and footwear by 2022.