Presentation To Ministry of Trade by Kassim Omar- Chairman UCIFA/ and also Chair
National Monitoring Committee NTBs Private Sector, on interpretation of the Bilateral MOU
signed and the hidden implications of the Cash Bond Crisis imposed by Kenya Revenue
Authority 01/10/2012
1) On 31st August 2012, the Commissioner of Customs/KRA ordered that ALL DECLARATIONS for transit
vehicles exceeding 2000cc MUST be supported by CASH BONDS/BANK GUARANTEES. The notice was
posted on the Customs SIMBA System, targeting Clearing Agents, and which was to take effect from
September 1, 2012.
2) A similar directive was given for transit sugar destined to neighboring countries but the notice was
not posted on the System through the usual notification procedures. Clearing Agents who lodged
transit entries for sugar received rejection notifications asking them to cancel the entries captured
with a general bond and instead obtain CASH BONDS/BANK GUARANTEES.
Reasons given by the Commissioner of Customs for instituting above punitive measures:
a) A lot of high range transit vehicles are diverted to Kenya.
b) Too much sugar is being re-exported from Uganda to Kenya under Comesa tariffs (0% duty) yet
Uganda imports sugar through Mombasa port.
c) General bonds for diverted vehicles are cancelled under suspicious circumstances.
d) URA was not cooperative in sharing information with KRA through RADDEX.
e) Commissioner claimed to have applied the law under Section 85 and 86 of the EACM Act to enforce
above requirements.(Interpretations seem to be on the contrary)
Observations:
i.
The directives did not target any specific countries. Transit shipments to Uganda, South Sudan,
Rwanda, DR Congo and Tanzania were all affected.
ii.
The directives did not isolate vehicles that did not meet Kenya Standards (KS1515:2000). Most
vehicles imported to Uganda are over 8 years old and those destined to Rwanda are left-handdrive - both types not be allowed in Kenya.
iii.
The directives affected ALL traders across the board, whether they do honest business or
otherwise.
iv.
Over transit 2000 units and 600 containers are held up in Mombasa to-date due to this.
v.
The orders were given without NOTICE. They were enforced on a weekend with immediate
effect.
vi.
KRA did not disclose names of the traders/clearing agents involved in diversion of sugar or
vehicles. Thus, their claims still remain a mystery.
vii.
KRA has not explained what crimes were committed when transit sugar cleared from Mombasa
found its way to Uganda, and the general bonds cancelled; since, as claimed, they ONLY had a
problem with sugar exported from Uganda to Kenya, whose source according to them, is
questionable.
viii.
KRA has not explained to which market the diverted transit cars end up. KRA is responsible for
registration of vehicles through the Road Transport Department. Since registration is directly
linked to the online documentation process, vehicles entered through transit entries, and those
which are non-compliant to Kenya Standards, CANNOT be registered in Kenya.
ix.
The orders were unilateral. KRA did not notify URA or the Community’s public in advance, before
implementation of the new rules.
x.
KRA declined to formally commit themselves and to document how and when they will expedite
refunds of the Cash Bonds once the consignments exited Kenya. (KRA still does manual
cancellation of bonds for transit-which they don’t mention as a major flaw in monitoring transit
cargo)
xi.
The directives are in conflict with provisions of both the Act on Enforcement of Bonds in Section
106 – 109. The law envisages Cash bond surety to be applicable on a case-by-case basis, and
only on identified persons whose compliance to transit trade conditions is questionable.
xii.
Commercially, and in law, Cash bonds cannot be applied universally.
xiii.
The directives are also in conflict with provisions of the Customs Union protocol which bar
partner states from taking unilateral decisions by instituting non-tariff trade barriers which will
affect movement of cargo destined to other partner states.
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xiv.
Similar rules had been introduced in the past but were quashed shortly afterwards due to their
negative effect on trade facilitation.
The MOU between KRA and URA signed on 17 th September 2012
Following the standoff caused by KRA’s actions on transit goods, a meeting was held in Nairobi on
September 17 and attended by KRA, URA and the HC of Uganda in Kenya. A businessman from the
Uganda business community (from a non-relevant sector) also attended. The other affected Partner
States, that is South Sudan, Tanzania, DR Congo, and Rwanda, and the Clearing and Forwarding
industry, were not present.
The contents of the MOU refer to ‘discussions’ and goes to list the resolutions reached but it does not
give a record of the deliberations. The salient issues on the MOU were:
1. Cash bond on transit sugar to Uganda: Cash bond lifted but transit entries will only be processed
on execution of Particular Bonds issued by selected (6) insurance companies, ‘and any other that
are compliant with KRA regulations’, or Bank guarantees.
2. Imports of Brown Sugar from Uganda to Kenya: these will be allowed on execution of bank
guarantees, pending investigations to establish the source of the sugar by each administration.
3. Transit motor vehicles exceeding 2000cc: Cash bond lifted but insurance bonds must be
executed from ‘reputable’ insurance companies. This meant the six companies listed in (1) above.
Observations:
1. Since the MOU was signed by URA and KRA, it confirms the claims that the two authorities were
hitherto NOT talking to each other. It is confirmed that the Commissioner of Customs in Kenya never
wanted to answer calls from her Uganda counterpart on these issues before the meeting.
2. It is not clear why the other concerned Partner States were not invited. The MOU may not be binding
to them.
3. The industry was also not invited, yet the clearing agents are the critical stakeholders in Customs
procedures and the Backbone to the movement of goods in the region. For emphasis, the EACMA is
comprised of over 60% of articles on regulations for C&F processes.
4. The URA officials and the HC may not have had a clear understanding of the implications of the
terms that KRA were pushing for. After all, they are not the ones who process the said bonds – this is
the business of clearing agents.
5. Particular bonds (PB) and General bonds (GB) serve the same purpose. The only difference is that
the GBs can be recycled while PBs cannot. PBs are applied on a singular basis, and often on a
one-off transaction. PBs are tedious are expensive since they are only used once, yet they cost as
much as the GBs, if not more. Both are cancelled in the same manner after use – by KRA.
6. Insurance bonds, as a surety business, are offered on accommodation basis. Clearing agents have to
meet stringent terms from the Insurers before they can acquire the bonds. To obtain PBs for every
consignment will be a nightmare.
7. KRA cannot dictate which Insurance companies should provide the bonds because this will be
interfering with the principles of free trade. As it is now, KRA is declining all entries capturing
general bonds from companies not in the list of six they provided.
8. KRA has not officially cancelled bonds executed by the other insurance companies not in the list of
six, or demonstrated that those companies have been found liable for diversion of transit goods, and
therefore blacklisted.
9. Cash bonds and Bank guarantees are one and the same thing. While a cash bond is money paid
directly to KRA, Bank guarantee is paid to the commercial banks on shilling-shilling basis, for the
amount of import duty/tax to be secured.
10. The MOU did not indicate how URA/KRA will expedite retirement of the bank guarantees, since
investigations can take forever.
11. The MOU did not address the critical problem of accrued storage/detention charges at the port
of Mombasa arising from the unilateral decisions imposed by KRA. KRA should be held
responsible for all consequential costs since they circumvented the law and due process as provided
for under the Customs Union Protocol.
12. KRA have declined to issue any signed notice to withdraw the earlier conditions, even after signing of
the MOU with URA, for fear of being held liable for their wrong actions.
13. URA should not be dragged into the affairs of KRA, especially in their failure (KRA) to manage
its internal systems for monitoring of transit trade.
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14. KIFWA has filed a case in Court for Judicial review of the KRA orders.
None the less, these actions are in essence tantamount to an open declaration of severed diplomatic
relations if not reversed as soon as possible.
Kassim Omar
National Chairman
UCIFA.
Board Member-EABC
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