Penalty fee for not complying with import rule lowered

What you need to know:

Importers will now pay five  per cent of declared value for goods not inspected in the country of origin.

The government has drastically reduced penalties for importers who do not subject their goods to standards inspection in countries of origin, a move that observers say could open the floodgates of counterfeit and substandard products into the country.

On February 7, 2020, Industrialisation Cabinet Secretary Peter Munya directed the Kenya Bureau of Standards (KEBS) to lower the penalty for non-conformity from 15 per cent of the value of goods to just 5 per cent.

“The purpose of this letter is to direct the Kenya Bureau of Standards to charge a destination inspection fee at a rate of five per cent pending the publishing in the Kenya Gazette,” the CS wrote to KEBS managing director Bernard Njiraini.

Documents seen by the Sunday Nation reveal that CS Munya’s directive took effect immediately even though it is not backed by a legal gazette notice as required by law.

It’s a puzzling move given the fact that barely two months earlier, on December 5, 2019, the CS, through Legal Notice No. 183 of 2019, increased the penalty fee for non-compliance from 15 per cent to 20 per cent of the customs value of the goods.

Since Kenya first introduced the pre-inspection of goods and motor vehicles in countries of origin in 2005, a penalty fee of 15 per cent has been levied on traders who do not comply.

The pre-inspection programme was aimed at speeding up cargo clearance at the ports of entry, prevent counterfeiting, and shield locally manufactured goods from unfair trade practices, among others.

The directive from CS Munya is the third time within two months that the standards agency is revising the penalty for non-compliance.

On Saturday, Mr Munya said the move to reduce the penalty was a presidential directive that he said is crucial to reducing costs for importers and small traders.

“It is part of the SMEs (small and medium scale enterprises) strategy,” he said in a text message. “It will reduce tax burden on SMEs engaged in imports.”

Critics say the frequent policy changes on the matter will likely impact negatively on the stability of trade and commerce in the country. They add that the latest directive makes it attractive for importers to bring goods into the country without undertaking pre-inspection. The net effect, they say, will be congestion at the ports of entry as more and more goods will have to be subjected to inspection upon arrival in the country.

“This will encourage smuggling of goods through mis-declaration and undervaluation, not to mention the environmental challenges brought about by the destruction of substandard goods,” said a senior source at the standards agency who did not wish to be named.

Countries send notifications of changes in policy affecting conformity assessment to the World Trade Organisation (WTO) for purposes of transparency and compliance with WTO rules, in accordance with the organisation’s Technical Barriers to Trade agreement, to which Kenya is signatory.

“A notice takes about six months to be circulated to members. For the Kenyan case you have a situation of three changes in a period of less than one year,” said the source.

Pre-Export Verification of Conformity (PVoC) to standards for goods destined for Kenya from abroad is usually done by independent service providers who are appointed by KEBS through a competitive tendering process.

Goods found to meet relevant Kenyan standards are issued with certificates of conformity (CoCs) by the inspection agents. This normally marked the end of the inspection process.

In 2017, the Kenya Revenue Authority (KRA) requested KEBS to allow them to use the CoC data as one of the reference documents in customs valuation. This was as a result of alleged undervaluation by importers who circumvented the PVoC programme to bring in  goods without CoCs, thus leading to loss of revenue.

Although KEBS was charging a penalty of 15 per cent for non-compliance, the government felt this was not an adequate deterrent to traders who were by-passing the PVoC inspections.

In 2018, the Trade CS issued a legal notice raising the penalty to 20 per cent of the declared customs value for goods arriving without CoCs. Further, the notice made it a requirement to get permission from the CS before payment of the non-compliance penalty fee.

To address the challenges of small-scale traders and cargo consolidators, KEBS introduced a certification route in 2018 specifically for them. They were only required to present their goods for physical inspection by the inspection agent in the countries of exportation, leaving the testing component to be carried out by KEBS at the ports of entry.

But arising from the implementation of the 2018 legal notice, a number of consignments of goods whose quality was not known were held at the ports of entry since they did not have CoCs.

Following numerous complaints by traders, President Uhuru Kenyatta, during last year’s Madaraka Day celebrations in Narok, announced an end to further testing of goods at the point of entry.