Economy

Lube makers want raw material taxes to be scrapped


KRA headquarters at Times Tower in Nairobi. FILE PHOTO | NMG

Lubricant makers have asked the government to remove import duties on the raw materials used to make the product to allow them to compete with importers.

The Petroleum Institute of East Africa (PIEA) is asking the National Treasury to apply a zero rate on base oils and additives used as raw materials for the manufacture of lubricants, which are currently subject to a duty 10% import.

The PIEA argued that other petroleum products such as diesel, premium motor gasolines (PMS) and jet fuel are zero-rated, given their commodity status, while lubricant base oils are classified as intermediate goods, hence the law.

Import duties are levied on goods from other countries with current rates of zero percent for raw materials and capital goods, 10 percent for intermediate goods and 25 percent for Finished products.

The oil industry lobby says the taxation has caused local manufacturing of lubricants and packaging to shrink, amid high imports into China, forcing some companies to close shop and leading to job losses .

“Uncompetitive prices of lubricants in regional markets due to 10% tariffs on raw material expenditure (additives and base oils) are hurting local blending of lubricants,” PIEA said in a submission to the project. national tax policy.

“Reforms in the lubricants segment will not only lead to the revival of the local lubricants industry, but will also help Kenya regain its regional dominance in an export market currently exploited by neighboring countries.”

The taxation has led to the underutilization of local manufacturing capacity due to the influx of imported lubricants, according to the PIEA.

As a result, more than 40% of lubricants have been imported into the country as finished products despite the fact that lubricant manufacturing enterprises are half-operating.

The value of imported lubricating oils and greases rose 24% in 2021 to 2.86 billion shillings from 2.3 billion shillings a year earlier, according to data from the Kenya National Bureau of Statistics.

The increase is largely due to imports used by Chinese contractors performing work on government projects.

It comes after Parliament in August last year rejected a bill which sought to require overseas contractors to source all products and services locally, due to poor quality issues which would undermine the standards of infrastructure projects.

The bill sought to change the current law which requires all bidders to source at least 40% local products and services, dealing a blow to Kenyan businesses.

The value of exports and re-exports was 6.67 billion shillings, up 26.5% from sales of 5.3 billion shillings in 2020.

The consumption of lubricants in the Kenyan market increased to 61,602 metric tons in 2021 from 57,249 tons in 2020. However, KNBS data shows that more than 12,600 metric tons were imported while 28,800 tons of lubricants were exported during the year.

The national policy tax is expected to eliminate the inconsistency of the tax system through finance bills introduced every year that have caused shocks to consumers and investors, resulting in uncertainty, partial hoarding of assets and an unexpected increase in price.

The standard rate on import duties is expected to reduce tax wastage through misdeclaration of tariffs, which creates space for tax evasion and substandard products.

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