Taxes, smuggling and cheap imports hurt leather industry

Karori Mewangi, director Eldoret tanners (left) and his workers sort out skins and hides before disposing them for markets in and outside the country. [Peter Ochieng, Standard]

Dealers of raw hides and skins want the government to reduce export duty on animal products from the current 80 per cent to 30 per cent to stop alleged smuggling and allow exportation to West Africa.

In West Africa, the dealers say, dry hides and skins are a delicacy but the punitive taxation has stopped traders from exporting the products, hence cutting them off the lucrative foreign market.

Nine years ago, the government increased export duty on raw hides and skins from 40 per cent to 80 per cent to protect local markets from scarcity of raw materials, dealing a huge blow to Kenyan exporters. This was after major tanners in the country complained of an acute shortage of hides due to exportation.

The government had argued that tax would assist in encouraging value addition. Since then, hides and skin exports have declined.

However, some unscrupulous traders found a way to smuggle animal products out of the country to the lucrative market.

On one hand, hides and skins traders are arguing that the reduction of export duty to 30 per cent would tame the smuggling of hides and skins out of the country, while others want the 80 per cent tax to be increased, saying raw materials are diminishing due to the illegal exportation.

Eldoret Tanners Director Karuri Mwangi said on Monday the increased taxes had forced traders to sell only to local tanneries, which buy cured skins and hides at Sh35 per kilogramme, discouraging exportation to West Africa where the products fetch more than double the price.

"The price of dry hides (which is exported to West Africa) is Sh100 per kilogramme, and it does not need any chemical cure. But local tanners buy wet salted hides at Sh35," he told The Standard. "The wet salted hides have been made expensive by the increased prices of industrial salt, which is used in curing."

The trader said there was no shortage of hides and skins, noting that the hides exported to West Africa were those that do not meet the required quality for tanning.

He asked the government to give a three-month window for the exportation of dried hides every year to allow traders to reap from the West African market as well as ensure that tanners get raw materials.

"We urge the government to allow the law of supply and demand to prevail in the hides and skins industry," he said.

"We are also proposing a reduction of export duty from 80 per cent to 30 per cent to reduce the smuggling of hides to other countries, a vice that is reducing tax collection."

According to the Kenya National Bureau of Statistics 2022 Economic Survey, Kenya exported processed hides and skins worth Sh1.9 billion last year. A look at the country's economic surveys since 2017 indicates a sharp decline in leather exports, dipping from Sh5.08 billion in 2017 to Sh2.9 billion in 2019 before further plunging to Sh2.08 billion in 2020.

Fahd Barry of Nakuru Tanners said traders smuggling hides out of the country are getting high profits at the expense of tanneries.

"Eight tanneries out of 15 have so far shut down due to shortage of raw materials because of illegal smuggling of hides out of the country," he said.