Tax evasion? Mystery of missing Sh300 billion worth of China exports to Kenya

 

Containers inside the Kenya Ports Authority in Mombasa County on Tuesday, December 21, 2021. [Kelvin Karani, Standard]

Kenya might have lost huge tax revenues, with an analysis of official data showing imports valued at close to Sh300 billion from China were either under-declared or diverted.

Data from China’s General Administration of Customs, which handles international trade shows that the Asian country exported to Kenya goods valued at Sh738.9 billion ($6.73 billion using an average exchange rate of 109.7), in the 12 months to December last year.

However, this is a substantial variance compared to the goods worth Sh441.5 billion published by the Kenya National Bureau of Statistics (KNBS) for the same period.

KNBS, the national statistician, gets its data on exports and imports from the Kenya Revenue Authority (KRA).

This massive discrepancy has baffled analysts, with some economists like Kennedy Manyala fearing there might be an element of “misreporting.”

This, said Dr Manyala, means there is a high possibility of under-declaration, either by traders alone or with the collusion with customs officers.

“That is why KRA has been taking keen action on their employees,” said Manyala.

KRA had not responded to our query by the time of going to press, though an official from the tax authority who sought anonymity as they are not allowed to speak to the media questioned the accuracy of the data coming from China.

It is also possible that while the Chinese government records exports that leave its borders, they might not necessarily arrive in Kenya. “The only other reason is that the stuff that is coming in from China isn’t going through the correct channels,” said a tax expert who refused to be quoted.

KRA has insisted before that there has been a lot of under-declaration of imported cargo and has in the past launched a crackdown on consolidated cargo, triggering an outcry from small traders.

This comes at a time KRA has been tasked to cast its net wider to collect as much taxes from the public as possible.

Assuming that all these products attracted the lowest import duty of 10 per cent, the country would have gained almost 30 billion. 

This is enough to pay for the supply of vaccines and cash transfers to the elderly.

China is Kenya's leading trading partner, with the country importing almost everything from the world’s second-largest economy after the US.

The goods Kenya imports from China range from electronics, motor parts, shoes, garments, tyres and second-hand clothes.

In 2019, small traders from Kamukunji and Eastleigh protested what they described as punitive taxation by KRA, after a multi-task agency launched an all-out war against contraband goods.

The taxman has since launched non-intrusive scanners at key border points to help detect suspicious items.

An electronic cargo tracking system that monitors transit cargo from the point of entry to the exit is also expected to cut offloading of undeclared goods in the local market.

Recently, the government, in a bid to facilitate easy and faster clearance of Cargo, gazetted various facilities to be used for deconsolidation and clearance of cargo by small-scale traders.

“All cargo consolidated at the countries of export will, upon importation, be deconsolidated at facilities designated for that purpose,” said KRA.

This took effect early last month, with all consolidated cargo imported by sea and transported to Nairobi through rail being opened and cleared. It is then collected by the owners at the Kenya Railways Corporation (Boma Line) Transit Shed, in Nairobi.

However, there is almost no solution for under-declaration with KRA officials sometimes resorting to estimating the cost of the products, a move that has hurt a lot of traders.

Interestingly, compared to other data sets, KRA’s data is always lower than that of other institutions including the Observatory of Economic Complexity (OEC) — the world's leading data visualisation tool for international trade data and the World Bank.