KRA tax burden: Why costly imports could hurt businesses and consumers

The Kenya Revenue Authority’s (KRA) recent decision to raise the customs benchmark for imported goods has sparked a debate over the impact on businesses and consumers. The increase from Ksh2.5 million to Ksh3.2 million has left many small importers uncertain about the additional cost implications. While KRA insists the new figure is not a flat tax, traders argue it has created significant uncertainty, particularly for those operating on narrow profit margins.

For small-scale traders, customs duties are just one part of the overall cost of importing goods. They must also consider freight, transport, storage, and clearance fees. Any rise in these expenses limits their options: they can either absorb the additional cost, reduce their profit margins, or pass some of the expense to consumers. The latter option is particularly concerning as it can lead to higher prices for consumers, ultimately affecting the entire economy.

Traders like Kiharu MP Ndindi Nyoro have voiced opposition to the new benchmark, citing the already increased freight charges. He argues that the policy is unfair, especially when combined with the rising freight costs. KRA, however, maintains that the Ksh3.2 million is a reference point for simplified clearance, with the actual tax liability depending on the nature, value, and classification of goods. They offer to verify the goods if a trader disagrees with the figure.

The debate should focus on whether the new system achieves its intended purpose without unduly punishing compliant traders. The real concern is what happens when businesses can no longer absorb rising costs. Importers might eventually adjust their prices due to the increasing clearance, freight, and other operational costs. This could indirectly impact the cost of goods available to consumers.

While KRA has the responsibility to protect government revenue and prevent under-declaration, enforcement must also consider the realities faced by small businesses. A stronger tax system should balance revenue collection with the economic realities of businesses, jobs, and consumers. The ultimate goal should be a predictable tax system that collects the required taxes legally and closes loopholes, without excessively increasing the cost burden on the economy.