28th October 2003

Now KRA names and fetes top tax payers

The historic feting of top ratepayers no major surprises.
Except that in the top bracket of overall contribution was Kenya Ports Authority; surprising because going by parastatal tradition, the Authority should be busy squandering government money through poor business management and corruption.

Cash cow, clear-beer monopoly Kenya Breweries Ltd was expected to top the bill as it indeed did. Conspicuously missing in all categories though were contractors, usually associated with huge government contracts.

But an interesting one was KenCell which together with the Barclays and Stanchart banks graced the top category; this, as no explanation was offered could indicate huge management bill from the 60 per cent owner, Vivendi, and interest payment on loans.

That the firm together with other relative new players like Master Mind, and Safaricom appeared at all was a pleasant surprise.

Predictably, government through Teachers Service Commission paid the largest chunk of pay-as-you-earn, a good indicator off too much government in the life of Kenyans, and the imbalance between civil servants under Public Service Commission and teachers.

Telkom appeared for the wrong reason: Government taxing critically essential production input.

That Dr. Kenneth Kiplagat is the top payer, was not a surprise given his high profile clientele. BusinessWeek exclusively obtained the full list of top three payers except for PAYE as shown in the graphs.

OVERALL TAX CONTRIBUTION
Total Tax Collected	Sh201.695 billion
Customs & Excise	Sh100.575 billion (49.9%)
Income Tax Department	Sh71.214 billion (35.3%)
Value Added Tax Department	Sh28.497 billion (14.1%)
Road Transport Department	Sh1.409 billion (0.7%)
Top three taxpayers	Sh18.946 billion %of total tax 9.4%
AWARDS Winner
Kenya Breweries Ltd.	Sh11,159,603,888 (James Musyoki)
1st Runner up:BAT Kenya Ltd.	Sh4,007,266,118 (Simon Welford)
2nd Runner up:Kenya Ports Authority	Sh3,779,324,495 (Brown Ondego)
INDIVIDUAL TAXPAYERS CATEGORY
Winner:	Peter Kenneth Kiplagat
1st Runner up:	Vimal Bhimji Shah
2nd Runner up:	Michael Joseph
WITHHOLDING TAX
Total Withholding Tax	9.350 billion
% of total Income Tax	13.1%
Top three Withholding Taxpayers:	1.451 billion
% of total Withholding Tax	15.5%
AWARDS
Barclays Bank of Kenya Ltd.	Sh618,770,134 (CEO, Adan Mohammed)
1st Runner up: KenCell Communication Ltd.	Sh 509,991,421 (CEO, Philippe Vanderbrouck)
2nd Runner up: Standard Chartered Bank Ltd.	Sh 322,128,564 (CEO, Mike Hart)
CORPORATION TAX
Total Corporation Tax	Sh23.295 billion
% of Total Income Tax	32.7%
Top three Corporation Taxpayers:	5.555 billion
% of total Corporation Tax	23.9%
AWARDS Winner:
Kenya Ports Authority	Sh2,798,276,041 (Brown Ondego)
1st Runner up: Standard Chartered Bank Ltd.	Sh1,484,507,197 (Mike Hart)
2nd Runner up: Kenya Breweries Ltd.	Sh 1,272,435,226 (James Musyoki)
VALUE ADDED TAX
Total Value Added Tax Collected	Sh28.497 billion
Top three Value Added Tax Taxpayers	Sh5.928 billion
Top three Value Added Tax Taxpayers	20.9%
AWARDSWinner
Kenya Breweries Ltd	Sh2,491,660,115 (CEO, James Musyoki)
1st Runner up: Telkom Kenya Ltd.	Sh2,149,171,531 (CEO, John Waweru)
2nd Runner up: Mumias Sugar Co. Ltd.	Sh1,287,448,450 (CEO, Evans Kidero)
PAY AS YOU EARN
Total PAYE	Sh35.891 billion
% of total Income Tax	50.4%
Top three PAYE taxpayers	Sh4.593 billion
% of total PAYE	12.8%
AWARDS Winner
Teachers Service Commission	Sh3,083,495,774 (Head, James Ongwae)
1st Runner up :Barclays Bank of Kenya Ltd.	Sh817,516,711 (CEO, Adan Mohammed)
2nd Runner up: Kenya Ports Authority	Sh771,969,342 (CEO, Brown Ondego)
EXCISE DUTY
Total Excise Duty Collection	Sh35.931 billion
Top three Excise Duty Taxpayers	Sh9.869 billion
% of total Excise Duty	27.5%
AWARDS Winner:
Kenya Breweries Ltd.	Sh6,694,670,501 (CEO, James Musyoki)
1st Runner up: BAT Kenya Limited	Sh2,647,776,449 (CEO, Simon Welford)
2nd Runner up: Mastermind Tobacco	Sh564,435,713 (CEO, Wilfred Murungi)

East African states to set up joint power body

Kenya and its Eastern Africa partner states want to set up a single electricity regulatory body to guide the inter-connection of their power grids.

The proposed Eastern Africa Utilities Regulatory Association, once formed, would work to harmonise regional power regulatory frameworks.

Its formation would be a crucial first step in expanding the sale of electricity across common borders in the region.

The possibility of its creation was one of the key issues recommended at the week-long meeting in Nairobi for managers of electricity regulatory authorities in region, and earmarked for further detailed discussions at higher levels.

The managers at last week’s meeting came from Uganda, Tanzania, Kenya, Zambia, Ghana, Ethiopia, Rwanda, South Africa and Namibia.

It was jointly organized by Kenya’s Electricity Regulatory Board and the African Form of Utility Regulators, with funding from Public Private Infrastructure Advisory Facility – a World Bank agency.

Speakers concurred that a formal partnership in regional power regulation would create a conductive environment in which electricity trade can thrive.

Most importantly, the body would serve as a platform where the thorny issue of cross-border power tariffs could be discussed to “ensure countries that do not have adequate power resources had access to supplies while those endowed got commensurate rates for their supplies”.

The meeting was told that whereas countries such as the Democratic Republic of Congo had enormous energy potential, its neighbours have continued to experience power deficits, largely due to absence of a common arrangement to facilitate harnessing of the resource.

“With such a formal network in place, we will be in a much better position to exploit the synergies inherent ion the regional grouping to the manual advantage of the individual members,” said Mr. Isaac Bondet, executive chairman of Kenya’s ERB and one of the proponents for the regional power regulation venture.

Supporting the initiative, Pilaf’s Africa Regional Coordinator Brahma C. Doing said the inevitability of increased regional power sharing has made it necessary for the different regulatory authorities to forge closer ties.

Consequently, PPIAF has sought funding to train the authorities’ managers and technicians as a precursor to the envisioned future collaborative venture, he said.

Regional tariff structures
“These are the people who understand issues related to regional tariff structures and the legal aspects. They are the ones to guide such a process as politicians deal with issues relating to regional integration policies that would eventually make the dream possible,” Mr. Diong said in an interview with BusinessWeek.
Dr. Xolani Mkhwanazi, AFUR’s chairman, said a regional body would be facilitate faster grid interconnection.

The move to establish a regional energy regulatory body follows intensified discussions between Kenya, Uganda and Tanzania to boost their connectivity through an East African Power Master Plan.

Faced with perennial energy shortfalls, the three countries are banking on the Master Plan to address the power shortage problem heightened in the last few years by collapsed hydro-power projects in Kenya and Uganda.

And as a pointer, another ambitious programme has been mooted by several other states in the larger region.

Known as the Nile Basin Initiative, the venture brings together 10 countries in the River Nile catchment area with the aim of exploiting options for grid networking and power pools in the countries concerned including Kenya.
When implemented – consultations are already in top gear – it will extend the power transmissions grid from the Horn of Africa all the way to Democratic Republic of Congo and as far north as Egypt.

In the short-term, Kenya and Tanzania, the two partners least endowed with hydro-power resources, are looking down south for additional megawatts to augment supplies received from Uganda.

Kenya has been sourcing between 30 and 50 megawatts from Uganda, which has a total power output of 630 megawatts.

Local electricity demand was projected to reach 925MW this year. The country has an installed capacity of about 1,132MW.

In January last year Kenya landed a deal aimed at giving it an additional 50MW of power from Uganda upon the commissioning of the latter’s planned 250MW Bujagali power project on River Nile.

But the hope hit a cul0de0sac after the Bujagali project, which was expected to become operational by 2005, halted in July last year, in the wake of a graft-triggered financial crisis, plunging Uganda’s own power plans into a tailspin.

Egypt and Mauritius reject EAC’s tariff plan

Egypt and Mauritius have rejected a proposal to adopt the three-band common external tariff similar to the one which has already been adopted by the East African Community (EAC).

Early this year, the summit of the East African Community agreed to adopt a three-band regime, namely, zero per cent for capital goods and raw materials, 10 per cent for semi-processed goods and 25 per cent for finished products.

The summit is the highest policy making body of the community.
BusinessWeek has learnt that during a meeting of the trade and customs committee of Comesa held in Lilongwe last week, Egypt and Mauritius said they needed time to study the implications of adopting the tariff system.

The Comesa secretariat had proposed that the three-band tariff system operating in East Africa be adopted to create harmony between the common external tariff of the EAC and Comesa, and to avoid further segmentation of the region.

Secondly, the secretariat argued that the three band structure is closer to the existing MFN (most favoured nations) tariffs of at least eight member states of Comesa.
The secretariat had also recommended that goods agreed as deserving differentiated tariffs be left out of the three-band tariff system.

The event has once again illustrated the problem of overlapping memberships in regional trade groupings in Africa.

Kenya and Uganda are both members of Comesa and the EAC.
If Egypt and Mauritius hold their ground, the three partner states may in future find it difficult to stay in Comesa.

It is noteworthy that Tanzania pulled out of Comesa several years ago.
Although Comesa member states agreed to establish customs union in 1993, progress has proved to be slow.

The EAC countries have moved faster, and a customs union – complete with a common external tariff, is expected to be adopted in a matter of months.
It is generally accepted that no one country can belong to more than one customs union.

Clearly, the overlaps will have to be addressed before the launching of the Comesa and EAC customs unions.

Although the summit of the EAC had adopted the three band tariff system, a consensus among the business community of Kenya is yet to be reached.
A recent survey conducted among members of the Kenya Association of Manufacturers (KAM) found that a three band structure will have serious adverse effects on local industries, because of the low maximum tariffs proposed for both intermediate and final goods.

The study concluded that the reduced tariffs would lead to an influx of cheap and subsidized goods from Asia and the Far East. KAM had\s also argued that certain categories of local manufacturers will not be adequately catered for under the three-band tariff structure.

The association has proposed that a fourth tariff band, catering for intermediate products produced within the region, be introduced.

The study has also found that most of the manufacturing firms under the survey were operating at 64 per cent capacity. But with a three-band tariff structure, says the study, manufacturers expect capacity utilization rates to fall to 42 per cent. With a four-band tariff structure, capacity utilization would increase by 80 per cent. The grumbling by Kenyan manufacturers about EAC’s common external tariffs shows how much more difficult it will be to reach a consensus at the Comesa level.

Several hitches continue to slow progress towards a customs union for Comesa. First, not all members use a common tariff nomenclature. Several countries have yet to adopt the HS 2000 tariff nomenclature, the recommended standard for the region.

Customs valuation
So far, only nine countries have adopted HS2002. They are Kenya, Uganda, Madagascar, Malawi, Mauritius, Sudan, Zambia, Zimbabwe, and the Democratic Republic of Congo.

Neither have all countries adopted a common customs valuation system. While Comesa, as a region had adopted the GATT valuation system, eight members still use the Brussels Definition of Value (BDV).

A common customs valuation system is essential in a customs union, as it ensures that customs authorities are treating tradable goods uniformly. Countries still operating on the BDV system are Angola, Burundi, Comoros, Djibouti, Eritrea, Rwanda, Seychelles and Sudan. Fifteen countries are members of the World Trade Organization (WTO) while three are undergoing a process of accession.

Under the Comesa arrangement, there was supposed to be a progression from a preferential trade area to a free trade area to a common market, and finally, an economic union.

Other integration groups in Africa have adopted different approaches and skipped stages.

For instance, the Southern Africa Development Community (SADC) proposes to establish a free trade area, but is yet to say whether it wants to progress to a customs union.

The EAC plans to skip the free trade area stage, and set up a customs union by the year 2002.

A customs union has five characteristics; duty free and quota free trade among constituent customs territories; a common description and classification of tradable goods; a common method of valuing tradable goods; a common external tariff; and finally, a common administrative structure with common customs procedures and legislation.