Importers risk higher storage costs as thousands of shipments are delayed as the Kenya Revenue Authority (KRA) wrangles with insurance companies over new fees imposed on the system used to process customs bond insurance.
Customs bond insurance is a guarantee to the KRA that insurers will be held liable for all duties, taxes, fees and penalties associated with the goods if importing firms default on payment. KRA only clears the goods after evidence of the insurance-backed bonds.
Insurers say Kenswitch Limited, a company KRA brought on board in 2018 to provide a platform for submitting the original hard copy of the bonds to the taxman before goods can be cleared, has been providing the service for free but is now demanding 0.125 percent of the value of the customs bond.
The taxman has said it has no contractual agreement with Kenswitch and only started using the firm’s system on the recommendation of the Insurance Regulatory Authority (IRA) and has no idea whether any payment has been made to the company over the past six years.
According to the insurers, Kenswitch started charging the fee in November last year and has now switched off the system, demanding that the underwriters, banks, and clearing agents start paying.
But the insurers say the figure is “outrageous” given that they earn 0.1 percent of the value of the bond as their premium to take on the risk of default on duties, taxes, and fees.
The impasse has led to a pile-up of goods at various customs posts since KRA’s integrated customs management system (iCMS) only accepts bonds authorised through the Kenswitch system, without which goods cannot be cleared. The weeks-long standoff has led to increased storage costs for importers and fears of stock-outs for businesses in Kenya and the region.
Locked out
“We don’t understand how the company was onboarded in the first place. Their platform rate is higher than the premium rate and this makes no business sense,” said one of the insurers on condition of anonymity.
“KRA is not accepting the bonds. That means goods are just piling at the port and attracting additional demurrage charges to customers for every day there is a delay. And losses in hundreds of millions to businesses in Kenya and the region in the case of transit bonds.”
Kenya International Freight & Warehousing Association (Kifwa), the lobby for clearing, forwarding, and warehousing companies in Kenya, has written to the KRA customs and border control department saying the impasse has locked more than 250 agents out of the system, making it difficult to clear cargo.
In a letter dated September 5, a copy of which was seen by this publication, Kifwa national chairman Roy Mwanthi told KRA that the prevailing push and pull has stalled the processing and issuance of customs bonds, including CB11, which is the bond required by clearing agents before they are licensed to transact.
Mr Mwanthi said in the letter, that although the agents had paid Sh50,000 each for the three-year CB11 bond, they had been denied access to the system.
“Presently the affected agents cannot undertake their day-to-day legal mandate of cargo clearance and assisting KRA in collection of taxes for thousands of shipments which are now stuck in various customs areas awaiting clearance,” Mr Mwanthi’s letter reads in part.
“We kindly but urgently call on your intervention in breaking the impasse to enable the paid-up bonds presently lying at various insurance companies to be uploaded into the iCMS for cargo clearance documentation processing.”
In an emailed response to our queries, the KRA said the Kenswitch system was integrated into the iCMS on the recommendation of IRA to facilitate the “smooth implementation” of a government directive to give marine insurance business to local insurers.
However, the taxman said it has no contractual relations with Kenswitch and had no idea whether the firm has been receiving any payment for the use of the system.
“KRA has no visibility of any contractual agreement between Kenswitch and the insurance industry and therefore cannot comment [on whether Kenswitch has been receiving any payment]. KRA has written to the IRA to provide a solution to the insurance industry to enable clients to execute online customs bonds,” said Lilian Nyawanda, KRA commissioner for customs and border control.
IRA chief executive Godfrey Kiptum told this publication in a phone interview that he was been in discussions with KRA for a stopgap measure, including the possibility of manual clearance, to avoid further piling up of goods.
“We are in discussions with KRA to assist them either manually or through any other system. My understanding is that Kenswitch was piloting the system with the view that once the system is stable, they can start making money out of it. But the players are not happy with the charges,” said Mr Kiptum.
Marine and transit insurance has been growing, with premiums hitting Sh4.41 billion last year, a 5.2 percent growth from Sh4.19 billion in the previous year and 34 percent rise in the past five years when compared with Sh3.28 billion in 2019.
