Customs Self-regulation Can Transform Our National Revenues and Benefit every Consumer
W. Wanda, Executive Director, Kenya International Freight and Warehousing Association (KIFWA)
Problems that are hurting millions are rarely impossible to solve, with a case in point being Kenya’s severe issues in collecting customs duties correctly and clearing imports into the country through its ports in a timely and efficient manner.
As it is, efforts have been made by multiple stakeholders to speed and make accurate our international trade. KenTrade has provided an information portal and its single window system as technology aides. The president has cleared more than 20 agencies from the ports with defined delineations of responsibilities for the remaining agencies now handling all import checks.
For a decade, the Federation of East African Freight Forwarders (FEAFFA) in partnership with the EAC directorate of customs, East African Revenue Authorities (EARAs), the national associations of customs agents and freight forwarders in East Africa has been providing the East African Customs and Freight Forwarders Practicing Certificate (EACFFPC) training to customs agents in an effort to professionalize the clearance process.
Yet, still, Kenya suffers impaired tax and business revenues and higher consumer prices as importers consistently and systematically incur huge extra demurrage charges on slow clearance.
Indeed, the hold-ups are so often severe that studies have found many importers have been compelled to gain mastery of the clearing process themselves in order to secure their goods, although the mass of regulations, both at home and in other countries, span a huge area outside their core business.
A key problem, however, is the absence of legislation to regulate and guarantee the professionalism and knowledge of our customs agents and freight forwarders: in contrast to much of the rest of the world where clearing and forwarding goods require compulsory professional qualifications, registration, licensing, and a clear track record – in order to prevent rule-breaking and abuses.
Canada, for example, runs the government regulator the Customs Border Control Agency, which ensures customs agents are qualified, registered, licensed, and kept abreast of new rules. The agency checks each agent is tax compliant too. Likewise, in the US, customs agents must be licensed, which requires compulsory qualifications, and the same in Australia too, and around the world.
In Kenya, however, no professional licensing yet exists for agents and no qualifications are compulsory, which has created agents who are handling regulatory implementation without any understanding of the regulations and without monitoring or controls.
Yet to launch a new regulator presents an expensive way forward, at a time when public finances are stretched – in no small part because of the losses in customs duties themselves. Typically, creating a new regulator requires millions of shillings in start-up costs, and then more millions in recurrent costs to keep the new body running.
We spent Sh3.8bn in setting up the new Agriculture Food Authority and Sh113m forming the National Construction Authority. When it comes to the recurrent costs of running a regulator, examples run from the small like the Kenya Veterinary Board, which costs some Sh35m a year to run, to the large like the National Construction Authority, which currently spends around Sh1.7bn a year.
The government is stretching to cover these costs. According to the Ministry of Finance, in the year 2019/2020, government expenditure was set at Sh2.84tn, but the government only succeeded in financing 80 percent of that target, leaving a deficit of Sh569.4bn. As a result, it is now turning to austerity measures and further deepening its external debt to meet the deficit.
Yet correcting a loss-making activity must be a priority when it is, itself, contributing to our national budget shortfalls, which is why freight forwarders are now proposing the introduction of a self-regulation structure to achieve a rapid upgrade in the quality of the country’s customs clearance.
The recently unveiled Customs Agent and Freight Forwarder’s Management Bill proposes the creation of a Customs Agents and Freight Forwarders’ Management Council, and Kenya Customs Agents and Freight Forwarders Registration Board to oversee the industry, administered by the industry’s professional society.
The registration board will ensure all agents hold mandatory qualifications, register all customs agents and freight forwarders, publish the list of the certified agents annually, effect a professional code of ethics, and carry out disciplinary proceedings in the industry.
Such a model of self-regulation is not novel in Kenya, with the Law Society of Kenya (LSK), the professional body for all practicing advocates in Kenya, having exemplified the role that self-regulation can play in combining an ethical code of conduct, capacity building, and registration, to achieve the highest level of professionalism.
Every advocate must register with LSK in order to practice. The body publishes an annual list of the status of all advocates – covering, active, inactive, struck off, suspended, unknown, or deceased – with details of their specialisation and overall performance score. This level of transparency has aided ethical practice as advocates work to achieve a positive score and reputation.
LSK also provides mandatory skills enhancement programmes such as the Advocates Training Programme (ATP), and undertakes disciplinary tribunals.
A similar model now seems vital in customs clearance, with customs and cargo contributing more than half the country’s three trillion shillings budget. Resolving our currently random, disorganised and substantially unmonitored customs processes will benefit every Kenyan, generating more tax revenues, enhancing economic growth, and reducing the prices of imported goods.
We believe that by opting for self-regulation, we can secure all those gains without any new spend of millions in taxpayers’ funds. Thus, with the backing of government and parliament, we can now solve our customs shortfall, despite the constraints, and definitively.