KRA_presentation

					        Tulipe Ushuru Tujitegemee




              REGIONAL CONFERENCE ON THE NORTHERN CORRIDOR
                     TRANSPORT AND TRADE FACILITATION


                                             Challenging the Challenger,
               What are the problems attributable to the private sector players themselves ?
                                                             By
                                                  M.G.Waweru EBS
                                    Commissioner General, Kenya Revenue Authority
                                                   1st October 2009




                                                 www. KRA. go. k e
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                                           INTRODUCTION
             o     KRA and other revenue authorities in the Eastern African Region are
                   committed to facilitating trade.

             o     The challenge has been striking a balance between facilitation of
                   legitimate trade and revenue collection.

             o     By enhancing the quality of service delivery along the Northern
                   Corridor through elimination of trade inhibiting barriers, we shall be in
                   a position to enhance the competitiveness of the transit route.

             o     For us to succeed, there is need for all parties involved to play their
                   respective roles effectively.

             o     Although this is the preferred position, the true position is to the
                   contrary, leading to numerous challenges.


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                                    CHALLENGES FACED BY THE AUTHORITIES
            A. Handling Of Goods At The Ports
            1.     Masking of true identity of importers- Importers using paper
                   companies and other nominees to mask their identity especially for the
                   purposes of concealing volume of trade and undertaking illicit trading
                   activities including diversion and smuggling.
            2.     Delays in Cargo Clearance - failure by importers to facilitate clearance
                   of their goods on time leading to backlog of clearance procedures and
                   congestion of the port. Undue pressure to clear such backlogs have led
                   to bypass critical customs procedures.
            3.     Theft of Cargo: It is common knowledge that cargo often disappears at
                   the ports of entry or while in transit. Such thefts involve collusion by a
                   cross section of port operators and importers of goods.
            4.     Exploitation of Disparate Port Control Systems – The failure to
                   speedily achieve full integration between the various stakeholders at the
                   Port has led to cumbersome and costly delays.




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                                         CHALLENGES CONTINUED…..

             5. Perpetuation of Manifest Fraud:

                  This involves illegal amendment of Ship’s Manifest by shipping agents and
                   filing of supplementary manifests to facilitate fraud. Mainly through;

                        Changing Destination of Goods -for example cargo from a Container
                         Freight Station instead of being cleared for domestic market, cargo is
                         cleared for foreign destination. While in ‘transit’, such goods find their way
                         into the domestic market.

                        Change of Consignee from a person liable to pay taxes to a tax exempt
                         status - for example importation of commercial goods in the name of
                         Military supplies.




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                                       CHALLENGES CONTINUED…..
            B. Securing Movement of Goods across the Northern
               Corridor
            1.     Insufficient Bond Security- Major challenge in confirmation
                   of correct value, quantities and description of goods in
                   transit. This has made it profitable to offload goods into the
                   local market as the amount of bond is considerably less than
                   the actual taxes payable on the goods.
            2.      Insufficient capacity to physically Escort high risk
                   goods. Disappearance of trucks carrying goods in transit
                   from the convoys.
            3.     Corruption-Escort officers being subjected to temptation by
                   the importers to fraudulently certify exportation of diverted
                   goods.



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                                        CHALLENGES CONTINUED…..
                    C. Abuse of Tax Incentive Schemes and Privileges-

                   The Revenue Acts we implement are replete with disparate tax incentive schemes
                    without existence commensurate capacity to fully administer these schemes. These
                    include the Tax Remission and Export Promotion schemes and other tax deferred
                    schemes such as Bonded Warehouses.

                   This lack of capacity has been exploited by players in the market thereby severely
                   compromising revenue collection.




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                                            CHALLENGES CONTINUED…..
            D. Disparity in Standards and Tax Regimes-
                  Importers have continued to exploit the disparities in
                   standards and tax regimes within the region to conduct
                   illicit trading activities. These include;
                       Smuggling back goods exported and tax paid in the destination
                        country back to the transit country. E.g Spirits where different
                        excise tax rates exist between countries
                       KS1515:2000 Standard on second hand Motor Vehicle Imports.
                        Older non compliant vehicles are being imported for Uganda and
                        are subsequently driven in Kenya or corruptly registered in
                        Kenya.




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                                           CHALLENGES CONTINUED…..
            E. Exploiting of Porous Borders
                       Our borders have lengthy stretches of unmanned/unsecured land
                        and sea/lake borders which are continually exploited to bring in
                        contraband goods.
                       The problems of insecurity in the majority of these areas have
                        exacerbated the problem.
                       We have made our best efforts to invest in opening up new
                        border stations and surveillance equipment to control the illegal
                        movement of goods through these entry points.




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                                    CHALLENGES CONTINUED…..
                   F. Lack Of Information Exchange
                   Failure by the Revenue Authorities to exchange crucial
                   information about movement of goods across the region
                   has been exploited by unscrupulous importers bent on
                   obtaining false tax refunds and rebates under the pretext
                   of exportation of goods across borders in the region.
                   This lack of information exchange has also led to
                   manipulation of pricing of goods and skewed profit
                   attribution by multinational enterprises to the detriment
                   of regional economies.




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                                            CHALLENGES CONTINUED…..

             G. Underground Economy and Money Laundering

                   We have noted increased incidences of use of ‘hawallas’ and forex
                   bureaus to move funds obtained from both legal and illegal trade
                   intended to evade payment of income taxes and duties.
             o     Under-invoicing (Actually use of fake invoices) of goods by exporters
                   to reduce incidence of import duties and taxes in the destination
                   countries.




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                                      CHALLENGES CONTINUED…..
            H. Creation Of Cartels In The Import/Export Supply Chain
                  There are major risks arising where entities are involved
                   through the supply chain operating as shipping agents,
                   operators of container freight stations or bonded
                   warehouses, clearing and forwarding agents and
                   transporters at the same time.
                  The need for desegregation of these roles is critical to
                   ensuring self regulation and control of each of these
                   service providers, which is difficult in the current
                   scenario.




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        Tulipe Ushuru Tujitegemee


                                                          WAY FOWARD
             To facilitate trade, we will continue

             o      Harmonising and simplifying trade policies and procedures in the region.

             o      Request Policymakers to consider collection of taxes from the first point of entry for each
                    of the respective destination countries in the region.

             o      Automating and integrating our processes in all the regional revenue bodies

             o      Enhancing integrity of staff through focused interventions

             o      Enhancing risk based controls to allow for ease of flow of majority of goods

             o      Supporting joint operations of the revenue authorities at border stations.

             o      Building our manpower base and improving capacity of the officers

             o      Working closely with stakeholders through their member Associations

             We also expect support from stakeholders for us to serve them better.



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                                    END

                                    www. KRA. go. k e
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