Kenya mulls tax hike on clinker after trade malpractices by firms

Saturday March 19 2022

A clinker is offloaded at the Port of Mombasa on August 16, 2020. PHOTO | WACHIRA MWANGI | NMG


Kenya is set to increase duty on imported clinker to rein in on unscrupulous cement manufacturers involved in trading malpractices.

Nairobi says some errant cement companies have been abusing the low tax regime of 10 percent in the region and wants to discipline them through an increase in tax for imported clinker, which is a key ingredient in cement manufacturing.

The specific duty to be charged is still subject to discussion among the East African Community states within the broad framework of the Common External Tariff (CET) reform programme.

This latest development comes after Kenya rejected findings of a regional study to determine the quantity and quality of clinker.

The EastAfrican has learnt that various stakeholders have refused to adopt the report by the National Independent Clinker Verification Committee on the basis that the study failed to justify why some local cement manufacturers are importing clinker while producing the same product locally and exporting to EAC countries.

“Some of these cement companies are importing clinker and the same companies are mining clinker and exporting it to neighbouring countries. So we need to come out together to discipline that behaviour because you cannot import a raw material and still at the same time export the same raw material,” Kenya’s Trade and Industry Principal Secretary Johnson Weru told The East African in an interview last week.


“The Treasury and the Ministry of Trade are saying we need to discipline these businesses. But who is going to bell the cat? ” he posed.

New CET structure

According to Kenya’s Ministry of Trade and Industry, clinker is among the 115 tariff lines that are yet to be agreed upon by EAC member states under the revised four-band CET structure.

“We have a conversation going on for what rate to charge, between 10 and 25 percent for clinker, but it has never been discussed as a substantive agenda in the sectoral committee for trade, finance and investment unless a member state so introduces it,” said Mr Weru

“What we are going to do first is to agree on the common duty that we are going to charge at the external level.

‘‘You know you cannot target a single product in a band because that is tantamount to discrimination. So once we agree on the duty at that particular point then we will know where to place clinker,” he added.

Last year, Kenya launched an investigation into the status of locally manufactured clinker in a move to tame the then simmering dispute between cement manufacturers and the Kenya Association of Manufacturers (KAM) over a proposal to increase the Common External Tariff on imported clinker to 25 percent from 10 percent.

The government says the report from the probe failed short of addressing trading malpractices by some cement companies that also sit in the key decision-making organs of KAM, creating a conflict of interest.

“The report was not fully adopted by the various stakeholders so we are still consulting,” said Mr Weru.

KAM chief executive Phyllis Wakiaga told The EastAfrican that the current duty rate of 10 percent on imported clinker still holds because the EA member states have not held discussions to increase the rate.

In 2020/21, National Cement Company and Mombasa Cement submitted a proposal that duty on imported clinker be increased to 25 percent from 10 percent, arguing they have sufficient capacity to supply the aggregate local demand for clinker in Kenya.

But Bamburi Cement, Savannah Cement, Rai Cement and Ndovu Cement, which rely on imported clinker for cement production, went up in arms against the proposal saying the move will lead to unfair competition and destroy investments.

Only two firms — Mombasa Cement and National Cement Company — produce their own clinker.

“We are wondering why someone should import something that is locally available and then participate in exporting,” said Mr Weru.

Clinker shortage

Among the findings of the report by the National Independent Clinker Verification Committee is that Kenya is grappling with a clinker shortage of 3.3 million tonnes, 40 percent of the demand, with 59 percent of this deficit being brought into the country duty free from Egypt.

However, there are four cement companies that have clinker production plants with a combined annual capacity to produce about eight million tonnes

The report shows that an increase in duty on imported clinker is likely to have a trade re-direction in favour of Egypt by virtue of the two countries belonging to a common customs union under the Comesa.

In 2020 Egypt and the United Arab Emirates accounted for 92 percent of the clinker imported by Kenyan companies, with the rest coming from Saudi Arabia.

Currently, finished goods imported into the regional bloc attract a duty of 25 per cent, intermediate goods (10 per cent) and raw materials at zero per cent under the EAC’s existing three-band tariff structure which came into effect in January 1, 2005.

In addition, there is a list of sensitive items such as sugar, wheat, which attract higher duty of above 25 per cent with an aim of protecting local industries from competition.

However the member states have agreed to review the bloc’s CET by replacing t it with a new tariff structure of four bands.

Under the revised four-band tariff structure the partner states have agreed 0 per cent import duty for raw materials and capital goods, 10 per cent import duty for intermediate products not available in the EAC region and 25 percent import duty for intermediate products available in the EAC region.

However there was a divergent of views on the rate to be charged on the fourth band of finished goods but last month (February) the EAC Secretariat broke the deadlock by proposing a 35 percent duty on imported finished products based on an in-depth analysis of various duties including 30 percent, 33 percent and 35 percent.

Clinker is currently charged 10 per cent duty as per the EAC Common External Tariff (CET) regime for intermediate goods.