Customs self-regulation can boost national revenues

Kenya suffers impaired tax and business revenues and higher consumer prices as importers consistently and systematically incur huge extra demurrage charges on slow clearance.

Indeed, the hold-ups are so severe that studies have found many importers have been compelled to gain mastery of the clearing process in order to secure their goods, although the mass of regulations, both at home and in other countries, spans a huge area outside their core business.

A key problem, however, is the absence of legislation to regulate and guarantee professionalism and knowledge of our customs agents and freight forwarders - in contrast to much of the rest of the world where clearing and forwarding goods require compulsory professional qualifications, registration, licensing, and a clear track record.

Canada, for example, runs the government regulator; Customs Border Control Agency, which ensures customs agents are qualified, registered, licensed, and keep abreast of new rules. The agency checks to ensure each agent is tax compliant too. Likewise, in Australia and the US, customs agents must be licensed.

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In Kenya, however, no professional licensing exists for agents and no qualifications are compulsory, which has created agents who handle regulatory implementation without understanding the regulations.

Yet to launch a new regulator presents an expensive way forward at a time when public finances are stretched. Typically, creating a new regulator requires millions of shillings in start-up costs, and then more millions in recurrent costs to keep the new body running.

We spent Sh3.8 billion in setting up the new Agriculture Food Authority and Sh113 million forming the National Construction Authority (NCA). When it comes to the recurrent costs of running a regulator, examples run from the small, like the Kenya Veterinary Board, which costs Sh35 million a year to run, to the large, like NCA, which spends Sh1.7 billion.

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The government stretches to cover these costs. According to the Ministry of Finance, in the 2019-2020 financial year, government expenditure was set at Sh2.84 trillion, but the government only succeeded in financing 80 per cent of that target, leaving a deficit of Sh569.4 billion. As a result, it is now turning to austerity measures and further deepening its external debt to meet the deficit.

Yet correcting a loss-making activity must be a priority when it is contributing to our national budget shortfalls, which is why freight forwarders are now proposing the introduction of a self-regulation structure to achieve a rapid upgrade in the quality of the country’s customs clearance.

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The recently unveiled Customs Agent and Freight Forwarders Management Bill propose the creation of a Customs Agents and Freight Forwarders Management Council, and Kenya Customs Agents and Freight Forwarders Registration Board to oversee the industry.

The registration board will ensure all agents hold mandatory qualifications, register all customs agents and freight forwarders, publish the list of the certified agents annually, effect a professional code of ethics, and carry out disciplinary proceedings in the industry. Such a model of self-regulation is not novel in Kenya, with the Law Society of Kenya (LSK) having exemplified the role that self-regulation can play in combining an ethical code of conduct, capacity building, and registration, to achieve the highest level of professionalism.

Every advocate must register with LSK in order to practice. The body publishes an annual list of the status of all advocates - covering active, inactive, struck off, suspended, unknown, or deceased - with details of their specialisation and overall performance score. This level of transparency has aided ethical practice as advocates work to achieve a positive score and reputation.

Customs processes

LSK also provides mandatory skills enhancement programmes such as the Advocates Training Programme, and undertakes disciplinary tribunals. A similar model now seems vital in customs clearance, with customs and cargo contributing more than half the country’s Sh3 trillion budget. Resolving our currently random, disorganised and substantially unmonitored customs processes will benefit every Kenyan, generating more tax revenues, enhancing economic growth, and reducing the prices of imported goods.

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We believe that by opting for self-regulation, we can secure all those gains without any new spending of millions in taxpayers’ funds. Thus, with the backing of government and parliament, we can now solve our customs shortfall, despite the constraints, definitively.

Mr Wanda, Executive Director, Kenya International Freight and Warehousing Association.

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KenyaKRATax revenuesSelf regulation