Despite shoppers walking in and out in droves at Timothy Kariuki’s second hand clothes (mitumba) shop in Ngara, Nairobi, he wears a sad face as many of the clients walk away having bought literally nothing, thanks to the recent hike of import duty which has pushed up the prices of Mitumba clothes.
According to Kariuki, the cost of ladies blouses which he specializes in has gone up by between 100 shillings and 200 shillings which is between one U.S. dollars and two U.S. dollars. He says the new cost is driving his clients away. “I used to go home with 20,000 shillings but this has tremendously gone down, we can hardly make even 5,000 shillings, many of our clients are now preferring ready-made clothes since they are more cheaper compared to our new prices following the tax hike which has forced us to review our prices up,” laments Kariuki.
Next to his shop is James Onyango’s shoe shop which unlike Kariuki’s is deserted. Despite boasting of having the latest designs of ladies’ shoes in the city, he says on a good day, since the government raised the import duty on second hand clothes, he sells only two pairs. “I used to sell over 10 pairs, but now business has gone down, most of my clients are complaining that the cost is too high, all of us are suffering and we might be edged out of business if the Kenya Revenue Authority (KRA) doesn’t review the duty,” says Onyango who also owns another shop at Adams Arcade in Hurligham.
Onyango says the traders are not opposed to paying tax but calls on concerned authorities to hold negotiations with the traders to keep them in the business. The second hand clothes dealers are now calling on the government to review the new tax duty saying they were not consulted. However, the Kenya Revenue Authority has defended the hike in import duty insisting that the increase was done in consultations with representatives of the clothes dealers.
KRA says it effected the hike following a meeting with Gikomba Wholesalers (GW) on December 1, last year where consensus on the matter was formalized through a Memorandum of Understanding signed by the two parties. Importers of used clothes have been up in arms after the revenue authority raised the duty charged on the clothes to Sh2.1 million from Sh1.3 million. As a result, importers say they have been unable to clear their mitumba containers at the port of Mombasa leading to their piling up while an increasing number of sellers at Gikomba market, the biggest market of the clothes in the country have been forced to close shop.
But according to KRA Commissioner of Customs Wambui Namu, the hike in import duty was justified as it was taken in line with the authority’s efforts at addressing weaknesses in tax administration process. “In this regard, we identified used clothing as an area prone to risk of undervaluation. Following an extensive market survey it was established that used clothing was significantly undervalued in relation to prices prevailing in the source market,” says Namu defending the tax collector’s move. She adds that KRA continued to implement provisions of the MoU with GW as was agreed and that a number of the used clothes dealers have complied leading to enhancement in taxes realized. “We commend those who have complied with the provisions of the MoU and wish to encourage others to follow suit,” added the Commissioner.
Subsequently, a consensus was arrived at on customs valuation and a benchmark value was also agreed for customs declaration purposes at the meeting with Gikomba wholesalers in December, 2011, she said.
“The consensus was formalized through a memorandum of understanding (MoU) and there has been compliance with the same by large number of second hand clothing dealers. In some cases, there has also been an increase in tax collection,” she further noted calling on those who are yet to comply to do so immediately.