CUSTOMS SERVICES DEPARTMENT

POLICY & LEGISLATION DIVISION

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1.0 INTRODUCTION

The Ministers responsible for Finance of Kenya, Uganda and Tanzania met at Hotel Impala, Arusha on May 14, 2005 to review the progress made in the implementation of the Protocol for the Establishment of the East African Community Customs Union.

During the meeting, the Ministers agreed on various amendments to the East African Community Customs Management Act (CMA) and the Common External Tariff (CET).

2.0 EXEMPTION REGIME UNDER EAC CUSTOMS MANAGEMENT ACT

a: Armed Forces Canteen Organization (AFCO)

Kenya and Tanzania provide for exemption on goods belonging to Armed Forces Canteen Organizations (AFCO's) but Uganda does not grant such exemption. The Ministers, however, agreed that Kenya and Tanzania continue givimg the exemption for another one (1) year but the exemption shall cease during the Financial Year 2006/ 7 when each country shall make budgetary allocations to enable AFCOs pay duties.

b : Returning Residents & Passengers

The Fifth Schedule Part B Paragraph 5 of the EAC Customs Management Act seems to have some crafting mischief in that it seems not to allow exemption on personal and household effects (including motor vehicles) to returning residents who resided in the Partner States previously.

Further, item (6) of the said Paragraph of the Schedule does not also specify the value of goods that passengers can bring as accompanied baggage on duty free status.

Henceforth, the exemption for returning residents shall apply to all, including those who have resided in Kenya before as long as they have lived outside Kenya for over two years.

Notwithstanding the definition of “owner” in Section 2 of the CMA, only the registered owner of a motor vehicle, or a person who satisfies the Commissioner either, that the motor vehicle was registered in the name of his spouse or in both his name and that of his spouse; or where the vehicle is purchased on hire purchase terms, the first installment in respect thereof was paid and delivery taken at least three hundred and sixty days prior to importation, shall qualify for exemption under this item.

The duty free importation will apply only to those who have lived outside Kenya for a period of not less than two years and has neither been granted an exemption under this paragraph nor resided in Kenya for periods amounting in aggregate to ninety days or more within the two years immediately before his arrival or return to Kenya .

The Commissioner may, however, waive the ninety day condition referred to above in respect of any period not exceeding three hundred and sixty days spent in Kenya if he is satisfied with the reasons given insofar as such reasons conform to the provisions previously prevailing under Cap 472.

In addition to the provisions of Fifth Schedule Paragraph 5(6) of the CMA, items of personal use of a value not exceeding US$ 300 may be allowed on duty free basis under this item.

c: Inputs For Agriculture, Horticulture & Floriculture

A new Section 15 has been inserted in the Fifth Schedule Part B of the Customs Management Act so as to give the necessary boost to the economy of East Africa , which is a largely agriculture-based.

The amendment caters for exemption from taxes of inputs imported by persons engaged in horticulture, agriculture or floriculture that are for their own use.

d: Splints For Manufacture Of Matches

A new item 18 has been inserted in Fifth Schedule Part B to exempt wood splints imported as inputs for the manufacture of safety matches.

e: Hotel Equipment

Tourism is one of our major foreign exchange earners, and the sector deserves significant support. To this end, a new Section 21 of the Fifth Schedule has been inserted to cater for goods imported for use in the hotel industry.

The following hotel equipment shall qualify for exemption:-

(i) Washing machines

(ii) Kitchenware

(iii) Cookers

(iv) Fridges and freezers

(v) Air conditioning systems

(vi) Cutlery

(vii) Televisions

(viii) Carpets

(ix) Furniture

(x) Linen and curtains

Provided that they are imported by licensed hotels and are engraved, printed or marked with the logo of the hotel and as approved by Treasury.

Application for duty exemption shall be made to the Permanent Secretary, Ministry of Finance.

f: Refrigerated Trucks

To enhance support for agriculture and related business in perishables, refrigerated trucks have be included in the exemption regime as a new Section 22 of Fifth Schedule Part B.

g: Diapers For Medical Use

It will be recalled that Finance Act 2004 amended Item 15(b) of Part B of Third Schedule of Customs & Excise Act, Cap 472 Laws of Kenya to include diapers for adults to enjoy the same exemption status as urine bags and hygienic bags. Collectively, these items help reduce the indignity of incontinence in patients.

Diapers for medical use have, therefore, also been included in the CMA by amending Section 13 Fifth Schedule by including “Diapers” immediately before “Urine Bags”.

h: Packaging Material For Medicaments

Section 16 of Fifth Schedule Part B has been amended to exempt from duties Packaging materials and raw materials for manufacture of medicaments.

i: Speed Governors

A new Section 23 has been added in the Fifth Schedule of the Customs Management Act to include speed governors. This inclusion in the exemption schedule in meant t o reduce the cost of doing business in the transportation sector without compromising the safety of road users.

j: Computer Software

Media containing computer software was not attracting any import duty rate under the First Schedule to the Customs & Excise Act. This was to enable Kenya build capacity in the area of Information & Communication Technology (ICT), and thus be abreast with the global information age.

To continue with the same policy framework, this form of media has been included in the exemption regime under the CMA as a new Section 24 of Part B of the CMA.

3.0. AMENDMENTS IN REGARD TO EAC COMMON EXTERNAL TARIFF

Part A: Amendment Of CET Rates

(i) Rice

Imported rice shall be charged duty at the Pre-CET rate of 35% for the next twenty-four months. This means that the application of the CET rate on rice imported into Kenya is suspended.

(ii) Worn Clothing

Though there is need to promote local textile industry, the drastic duty rate increase on used clothing from Kshs 20.00 per kilogram to Kshs 60.00 per kilogram on the date of the implementation of the EAC CET seemed counterproductive. To this end, the Ministers agreed to lower the import duty rate on used to clothing to 45% or US$ 0.30/ kg, whichever is higher

(iii) The CET rate on the following goods shall be 0%

(a)Pharmaceutical products of tariff numbers

3004.10.00; 3004.20.00; 3004.32.00; 3004.39.00;

3004.40.00; 3004.50.00; 3004.90.00 and 3006.50.00.

This is in line with Government policy of making medical

care accessible to citizens

(b) Sanitary towels and tampons of tariff numbers

4818.40.10 and 5601.10.00

(c) Liquified Petroleum Gas (LPG) of tariff numbers

2711.11.00; 2711.12.00; 2711.13.00; 2711.14.00

and 2711.19.00

(d) Coal under tariff numbers 2701.11.00; 2701.12.00;

2701.19.00; 2701.20.00

Items (c) and (d) above are alternate sources of energy, which are used in large quantities in the manufacturing sector, especially in tile making plants. The removal of taxes will thus contribute to the reduction of costs of doing business in Kenya .

(e) Aluminium wire of cross-sectional dimension

exceeding 7mm under tariff number 7605.11.00

Being a primary input to wire manufacturing, this product is now eligible for exemption just like other goods of similar use.

(f) Safety belts under tariff number 8708.21.00

Similar in application towards safety on the road like speed governors, the removal of taxes on this item reflects the Government’s commitment to enhancing road safety for road users as part of the broader reforms in the transportation sector.

(g) Palm stearin fractions under tariff 1511.90.20

This is a primary input for soap manufacturing. With a view to improving local soap industry capacity, palm stearin is now eligible for exemption.

Part C: Correcting Anomalies On CET

• Tariff number 3307.49.00

This tariff number appears twice in the CET Handbook. The repeated tariff number should be amended to read "3307.90.00" but the description and duty rate remain the same.

(ii) Motor vehicles

Duty rate for motor vehicles, whether with diesel or petrol engines, should attract a standard rate of 25%. Thus, duty rates in relation to the following tariff numbers should be changed from 10% to 25%:

Steve Kilungya,

P & L Division,

Customs Services Department