Why Kenyans must look beyond outrage on KRA customs policy

KRA’s revised customs benchmark is sparking debate over taxes, trade and the future of small-scale traders. [Courtesy]

Last week, small-scale traders took to the streets in Nairobi to protest against the Kenya Revenue Authority (KRA), objecting to a 28 per cent increase in the customs minimum benchmark value for consolidated cargo. In practical terms, the change raises the valuation benchmark for shared cargo from Sh2.5 million to Sh3.2 million per container; an increase of Sh700,000.

Several activists have joined the traders in denouncing the measure, portraying it as yet another example of the Kenya Kwanza administration’s penchant for punitive taxation. This charge is politically potent, but is it accurate? Do the allegations withstand scrutiny?

These questions matter in a country where even commentators expected to have a sophisticated understanding of tax policy can make sweeping, and sometimes misleading, claims that portray government measures in the worst possible light. Before accepting the familiar narrative of a government intent on squeezing taxpayers, it is worth examining what the KRA has actually charged, why it has done so and what the measures mean for importers.

Taxes are, first and foremost, a civic obligation. Every adult citizen is required by law to contribute; taxation is neither optional nor a favour extended to the government. It is the principal means by which a functioning state finances public services, infrastructure and the institutions on which society depends.

Without a reliable tax base, the machinery of government cannot function effectively. Law and order deteriorate, justice becomes harder to administer and the State’s capacity to protect its most vulnerable citizens is weakened. Even the most necessary services- reliable water and electricity, education and healthcare- become increasingly difficult to provide. Taxation, therefore, is not merely a financial transaction between citizen and State. It is one of the foundations of a functioning society.

Second, goods crossing international borders are generally subject to customs duty. This is typically an ad valorem tax, meaning that the duty is calculated as a percentage of the declared value of the goods. In the ordinary course, the importer presents invoices or other documentation establishing that value against which the applicable duty rate is then applied.

Third, consolidation of goods by small-scale traders is fundamentally a trade-facilitation measure. Although it reduces individual freight costs, it does not exempt traders from paying applicable duty. The Sh3.2 million benchmark recently set by KRA represents its expected yield from a container, rather than a permanently fixed valuation. It is not a new tax. Such a benchmark must inevitably respond to inflation, exchange-rate movements and geopolitical disruptions that reshape global supply chains, just as underlying costs of purchasing and transporting goods fluctuate.  Indeed, the benchmark is not frequently adjusted; its previous revision occurred six years ago, underscoring the rationale for the latest review.

Last, the consolidation of cargo should not be regarded as a permanent feature of a trader’s business. Rather, it is a transitional mechanism designed to facilitate growth from cottage-scale operations into more formal enterprises. It serves as an incubator, enabling small businesses to expand until they can operate as dealers in the merchandise they import, with attendant benefits, including refunds of input Value Added Tax. Ultimately, the policy should encourage traders to move beyond importing low-value goods towards manufacturing them domestically, thereby deepening local production and value addition.

Mr Khafafa is a public policy analyst