Mombasa Governor Hassan Joho’s family business row has exposed the frosty relationship between Container Freight Stations (CFS) operators and state agencies.
Kenya Revenue Authority (KRA) accuses some CFS of colluding with importers seeking to evade tax, facilitating illegal trade and overcharging importers.
Some CFS have been on the spot for facilitating importation of contraband goods while some have been cited as conduits of illegal exports like minerals and ivory trade and disposal of transit goods into the Kenyan market.
On December 23 and 26, last year and on January 15, KRA and other state officials impounded 71 containers of illegal sugar and 64 boxes of ethanol in some CFS in Mombasa.
KRA lacks the capacity to carry out 100 per cent verification of cargo passing through the port of Mombasa, a loophole some importers use to sneak cargo to the CFS. But KRA has also been blamed of laxity as there are custom officials based at all CFS.
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“The so-called collusion cannot be blamed on CFS only. There are customs officers (from KRA) who are stationed there. We cannot do away with CFS with the kind of port support infrastructure we have. We must invest more in roads and railways to enable faster movement of cargo from the port before we think of doing away with these facilities,” says Salim Nassib Mbarak, Weston Logistics managing director.
The operators said as long as importers and exporters are free to nominate their preferred CFSs prior to submission of import manifest to the KRA there is a possibility that some CFS and importers can collude to do illegal trade.
“There is a high likelihood that an importer can only take say a contraband to a CFS that can assist him to clear it,” said Mr Peter Otieno, Chairman of Car Importers Association of Kenya.
On the closure of Joho’s family CFS, Container Freight Station Association (CFSA) Chief Executive Daniel Nzeki accused KRA of misleading the nation on the matter and disregarding an ongoing court case in which CFS’ have challenged the taxman and KPA’s new regulations regarding nomination of cargo to freight stations, among other new rules.
Mr Nzeki said KRA cannot not escape blame for any wrong declaration of goods and tax evasion because it is involved in the movement of cargo right from when it arrives at the port.
Last month, KPA issued a notice to the effect that starting March 1, it will solely have the powers to nominate cargo to CFS after KRA complained that some CFS were colluding with unscrupulous importers to deny the government tax.
“Following well-founded security, port congestion and tax leakage concerns, the government has directed that with effect from March 1, the KPA will have the sole mandate of nominating freight containers to designated CFSs,” a notice by KPA signed by managing director Gichiri Ndua stated. But on January 22, CFSA moved to court to challenge the decision.
The CFS concept came up in 2000 after the Mombasa port experienced congestion over surge in the volume of cargo imports.
“The concept came up because the area for handling cars at the port -- G-section and adjacent space – could not cope with an increase in motor vehicle imports. There has been an increase in motor vehicle imports for the last five years,” said Kenya Ports Authority (KPA) public relations manager Bernard Osero in an interview.
On containerised cargo, in 2014, the port handled more than 1 million Twenty Equivalent Unites (TEUs) (standard measure of a container) against its capacity of 600,000 TEUs.
KPA admits that it has not been able to utilise three inland container deports (ICD) in Nairobi, Eldoret and Kisumu due to lack of reliable road transport system and inefficiencies of the railway system that accounted for just five percent of the total volume of cargo.
To cope with surging volumes and to avert delays and related penalties from the shipping line, the government started to license the CFS in 2005 under Section 12 of the East African Community Customs Management Act, 2004.
Since then the number CFSs have increased to 24 across Kenya that have also over the years evolved from just storage areas to custom-bonded facilities that clear cargo on behalf of the port.