New EU Tax To Cost Kenya Sh100 Million Per Week

Kenyan exporters eyeing the European Union market face a tax bill of up to Sh100 million per week starting next Wednesday after failure to sign a new trade agreement. The development could pile more pressure on the shilling, which is already hurting from suppressed tourism inflows.

Amina Mohamed, Foreign Affairs and International Trade secretary. PHOT | FILE | NATION MEDIA GROUP

Trade between the EU and partner states of the East African Community (EAC) will on October 1 enter a higher tax bracket than the current one where developing countries are granted preferential market access for their goods. Kenya and other EAC partners have not concluded the Economic Partnership Agreement (EPA) negotiations that would have accorded them duty-free, quota-free access to European markets.

“We estimate that, if exports continue at the same pace, duties to be paid would amount to some Sh100 million a week,” Christophe De Vroey, head of communication at the EU delegation in Kenya, said in an interview with the Business Daily.

The new taxes are expected to make Kenyan goods more expensive to EU citizens, hence impacting on sales volumes and in turn reducing foreign exchange inflows to the country. Kenyan exports to the EU have since January 1, 2008 enjoyed preferential, duty free access to European markets. But from October 1, the arrangement will only be reserved for countries that have concluded negotiating new Economic Partnership Agreements (EPAs) with the EU.

“From October 1, 2014 most Kenyan agricultural exports will be subject to EU GSP tariffs. Some goods will still benefit from a zero per cent tariff-line, such as coffee beans, tea and carnations. The duties will still be lower than normal EU tariffs on goods from non-GSP countries,” the EU said in a statement yesterday.

Foreign Affairs and International Trade secretary Amina Mohammed on Sunday announced that EAC partners had reached an agreement that could allow them to sign an EPA deal with Europe.

But even with the announcement, it is certain that the parties will however not beat the October 1 deadline because of the elaborate process required to ratify the deal at the EAC level and later handing it to the EU for scrutiny and approval being it can be signed.

“The Arusha results still need to be studied by the EU side. Whenever a deal is ultimately reached and not necessarily this month, it is too late to avoid a gap in preferences for Kenya,” said Mr De Vroey.

Kenya’s flower industry stands to be hard hit by the taxes because its peak season starts in October. “It might take between three to six weeks of paying taxes after the agreement is reached, We are trying our best to ensure that this duration is reduced to a minimum as possible,” Jane Ngigi, the chief executive of the Kenya Flower Council (KFC), said.

The EU said it was committed to ensuring a speedy conclusion of the talks to spare Kenyan exporters prolonged pain. “Both parties in the talks are willing to conclude promptly, so the new trade rules (GSP) may only apply for a limited period,” the EU said.

Mr De Vroeysaid the taxes paid by Kenyan exporters pending the conclusion of EPA talks with European were not refundable. “Under EU legislation a refund is not possible,” he said.

Besides the taxes, Kenyan and other EAC exporters to the EU will face stringent measures to ensure only products originating from the region benefit from the preferential terms. “In order to benefit from EU preferential duty rates, Kenyan products must be accompanied by a document proving their origin,” the EU said, adding that the document would have to be presented at the border for customs clearance.

Kenya and other EAC countries have been using a special clearance form known as Euro 1 (EUR10 to access European markets. Presently the Euro 1 is issued for goods originating from all Africa Caribbean and Pacific (ACP) countries (under a preferential trade arrangement) destined for the EU market.

It is applied in accordance with the ACP/EU Cotonou Trade Agreement of the year 2000.

The goods and products are granted preferential access into European markets as long as they are wholly obtained or sufficiently processed in the country of origin. The goods and produce must also meet regulatory requirement such as safety standards. This is set to change from next Wednesday after the EU introduced as certificate of origin known as Form A to facilitate the entry of goods into its market under the GSP system

“As of October 1, 2014 the current ‘EUR1’ form for proving origin must be replaced by the certificate- GSP Form A,” the EU said.

In addition to the certificate of origin, exporters will also be required to submit a commercial invoice, customs value declaration, freight and insurance documents and packing list among others.

Signing of the EPA deal is partly delayed because East Africa states want a provision for special export taxes in order to protect certain sectors that they consider sensitive to discourage the export of raw materials to Europe instead to carrying out better revenue fetching value addition by local industries.

– Business Daily