Chinese imports are set for tighter scrutiny as President William Ruto’s government intensifies a purge on entities and individuals who undervalue products shipped from the Asian nation, denying Kenya billions of shillings in tax revenue.

The Treasury in its revenue strategy for the medium-term plans to deploy the Kenya Revenue Authority (KRA) for special partnerships with its counterpart agencies in other jurisdictions to determine the true value of imports shipped in from China.

Kenya imports most of its finished goods—from electronics to clothes—from China.

However, the government reckons that the value of most of these products—especially electronics such as mobile phones and computers — have not been accurately priced, leading to tax leakages running into billions of shillings.

Read: KRA nets 70,000 tax cheats from third party dataAs part of its revenue administration measures that will be implemented in the strategy period, the Treasury said the government will be working with other tax authorities in determining the true value of “high-risk imports from China,” in what is aimed at addressing the problem of misinvoicing.

Trade misinvoicing involves manipulating the price, quantity, or quality of a good or service on an invoice so as to shift capital illicitly across borders.“Specific tax measures to be implemented include…to establish a clear framework on the exchange of information (EOI) with other tax jurisdictions for both domestic taxes and customs to ensure the flow of information e.g., valuation of high-risk imports from China and Transfer pricing paused by multinationals,” the Treasury said in its freshly published Medium-Term Revenue Strategy for the period 2024-2027.

In 2022, Kenya imported goods valued at Ksh452.6 billion ($3.1 billion) from China, an increase from Ksh441.4 billion ($3 billion) the previous year, data from the Kenya National Bureau of Statistics (KNBS) show.

Kenya imports mostly television sets, large construction vehicles, clothes, and steel products from China, known as the factory of the world.

Local manufacturers have also decried the inflow of counterfeit and sub-standard products which have also not been subjected to tax.

Read: Manufacturers fear Kenya could soon be EA's ‘supermarket’“Illicit trade, especially counterfeiting, undermines the value of authentic products and investments that is legitimate business is put into their brands,” said Antony Mwangi, the CEO of the Kenya Association of Manufacturers (KAM).

The KRA in 2018 said it planned to enlist global help in the fight against trade in smuggled cigarettes from Europe, China, and Dubai, which has partly hit excise tax collections.

Robert Waruiru, a tax expert, said cigarettes, perfume and alcohol are among the products that are readily converted into cash.

He said that for such products, the KRA does not allow a trader to warehouse.“You bring them into the country, you pay taxes upfront,” said Mr Waruiru.

He noted that the high-risk products from China that the government wants to go after could also be those which are under-declared.

Already, the KRA has directed all traders, including those who ship their goods through a cargo consolidator, to pay taxes on their cargo per item and have them cleared within 21 days or be auctioned.

Products affected by this directive are mostly Chinese imports, including electronics and second-hand clothes.

Read: EA bloc in new push to keep out 'mitumba' importsTaxes on consolidated cargo have for a while been paid per kilogramme, creating an opportunity for mis-invoicing through which the State has been losing billions of shillings in revenues.

An analysis done earlier by the Business Daily showed that Chinese imports valued at Ksh431.9 billion ($2.94 billion) for the first 10 months of last year were missing from official data reported by the KRA, raising concerns over the scale of tax evaded in the election year.

An analysis of official trade data published separately by the two countries' tax authorities has revealed a wide disparity in the value of imports from the Asian economic giant.

Official KRA data, as published by the KNBS, placed the value of imports from China at Ksh377.5 billion ($2.66 billion) in the review period.

However, the General Administration of Customs of the People’s Republic of China (GACC), which is the equivalent of KRA, says on its website that the goods exported from China to Kenya during this period were valued at Ksh809.4 billion ($5.51 billion) — more than twice the figure given by the KRA.

This huge variation also brought into question the amount of taxes collected on imports from China, as goods shipped into the country attract a myriad of levies, including import duty, value-added tax (VAT), excise duty, import declaration fees (IDF) and the railway development levy (RDL).

Kenya is grappling with a problem of trade misinvoicing, whereby imports or exports are misquoted at the port to avoid paying customs duties.

This form of tax evasion can also occur when there is import under-invoicing, which would cause fewer payments of VAT and customs duties due to the lower valuation of goods. © Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).