Impact of New Custom Levies on Imported Cereals

 

The Kenyan government has recently introduced new levies on imported cereals, a move expected to have significant implications for both importers and consumers. Effective from August 12, 2024, the Agriculture and Food Authority (AFA) imposed a 2% levy on the customs value of all imported cereals and legumes, alongside a 0.3% levy on exports of these products. Initially slated for implementation on July 1, this decision follows Regulation 37 of The Crops (Food Crops) Regulations of 2019, which had been postponed. This newsletter aims to provide our clients with a comprehensive overview of these changes, their expected impact, and potential future developments.

Impact on Prices and Trade

The introduction of these levies is anticipated to lead to significant cost increases for traders. Estimates indicate that a truckload of maize will incur an additional KSh 20,000, while rice will see a hike of KSh 50,000. These additional costs come on top of existing charges from other government agencies, such as the Kenya Revenue Authority (KRA) and the Kenya Plant Health Inspectorate Service (KEPHIS). Consequently, importers are facing a substantial financial burden, which is likely to be passed on to consumers in the form of higher prices for essential goods like rice and wheat flour.

Industry Reactions

The reaction from industry stakeholders has been overwhelmingly negative. Key organizations, including the Shippers Council of East Africa and the Kenya International Freight & Warehousing Association, have voiced concerns that these levies will hinder business growth and reduce the competitiveness of Kenyan products in the regional market. With neighboring countries like Uganda and Tanzania already expressing dissatisfaction with the new measures, there is a real risk of trade tensions that could further complicate Kenya’s economic recovery efforts.

Future Considerations

In response to the backlash, AFA's Director-General has announced a temporary freeze on the implementation of these levies, granting a one-month window for further stakeholder engagement. However, if these levies are reinstated, the repercussions are likely to be felt widely across the economy. Higher consumer prices will exacerbate the cost of living, and the Kenya National Chamber of Commerce and Industry has warned that reduced export volumes could negatively impact foreign exchange earnings, potentially undermining government efforts to stimulate economic growth.

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