Kenyan vendors face a shortage of smartphones as KRA tightens grip on tax evaders

Smartphone vendors in Kenya face challenges as taxation measures and supply shortages impact prices and availability. The Kenya Revenue Authority (KRA) wants to stem tax evasion, leading to slower business and higher consumer prices.

A smartphone shortage in Kenya has been going on over the last few weeks. Many official and non-official vendors have voiced their concerns about the shortage, with some stating that they have been forced to close their operations or reduce their employees. The retailers who are still selling smartphones are the ones who stocked their shops with a big volume of devices. The overall low number of smartphones on store shelves has also compelled retailers to increase the prices of their devices. This has made it more challenging for locals to afford such devices since Kenyans are budget hunters who prefer entry-level smartphones.

We are almost done with our stock . Our goods have been held in in customs for more than one month now. We may have to close soon because we may have nothing to sell.

— Oliver Cheruiyot (@OliverCheruiyot) July 18, 2023
A shortage of electronics has been reported in Kenya, with smartphones being the most affected.

KRA imports tax adjustments

According to The Star, importers of consolidated cargo were asked to pay taxes based on the transaction value, per a new directive issued by the Kenya Revenue Authority (KRA). This move departed from the previous model, where importers declared loose cargo and paid a fixed duty of KES 200 per kilogram. According to KRA, the decision to adopt the new tariff, based on transaction value, followed the abuse of the initial government directive, which aimed to ease costs for small importers.

Some importers of restricted items, such as expensive mobile gadgets and other electronic devices, have been cutting corners to bypass import permits. For instance, some importers have reportedly been shipping in high-end mobile devices, declaring them feature phones. This, in return, saw them pay a fraction in tax of the actual value of the devices. Besides, the taxman observed that many of these importers brought in their goods through consolidation, avoiding using their PINs to declare imports. So, they ended up owing a lot of VAT on their iTax PINs and couldn’t use their sales VAT to cover it.

The matter was discussed by NTV’s business host Julians Amboko, who spoke with KRA’s Ag. Commissioner general Rispah Simiyu. Amboko explained that what had occurred was that while feature phones were kept under the per kg consideration after June 1, 2023, smartphones, along with other excisable goods, were switched to the per unit value consideration. KRA stated that it had observed the passing of smartphones as feature phones. The commissioner was asked about the amount lost due to the concealment of consolidated cargo. According to her, there was one instance where an item initially assessed at KES 85,000 ($600) per kg yielded over KES 700,000 ($5,000) after undergoing 100% verification. “When we realised this huge level of concealment and under-declaration, we decided to halt to halt the release of some of of the cargo and went for 100% verification,” Simiyu said.

Amid the crisis, smartphone prices will continue to rise

Mildred Agoya, realme Kenya’s marketing manager, who acknowledged the rising cost of smartphones in Kenya told TechCabal that the surge is due to two main factors. “Smartphone prices in Kenya have risen and will continue to increase based on two factors. First, tax on smartphone devices has increased, directly affecting the price of these devices. Secondly, smartphones cost more than before because of the current currency exchange rate,” she said.

Mildred pointed out instances where Kenyan clients purchase realme devices at a lower exchange rate, say $1=KES 130. However, the dollar rate increases when the order is processed, leading to higher costs. The fluctuating exchange rates have significantly contributed to the surge in smartphone prices. For example, some realme models initially priced at KES 10,499 are now being sold for almost KES 12,000, representing a 10-20% increase, depending on the model.

The limited availability of smartphones is also a result of delayed customs clearance, which a new directive introduced by the KRA has exacerbated. Importers must now undergo multiple procedures to clear their products, leading to longer waiting times at KRA warehouses.

Security concerns have also compelled some vendors to limit the stock available in their shops. Kenya is witnessing weekly political protests, with citizens expressing discontent over the high cost of living. These demonstrations sometimes turn violent, resulting in looting and damage to private property. As a precaution, vendors are cautious about keeping a large stock in their stores.

Another smartphone maker with products in Kenya underscores realme’s input about currency exchange rates and supply chain bottlenecks. “The rising prices of smartphones in Kenya can be attributed to factors like currency fluctuations, increasing import costs, supply chain disruptions, and burdensome red tape measures. These challenges have led to a surge in prices, impacting affordability for consumers,” James Irungu, vivo Kenya’s brand and communications manager, told TechCabal.

What’s going to happen to rogue vendors?

There’s continuous speculation that some vendors have not been paying their fair share of taxes for a long time when importing smartphone devices. These are the groups that the taxman is targeting, and the KRA has already instructed them to collect their products since they have been cleared. NTV Kenya reports that the KRA is calling upon smartphone importers with cargo held at the Eldoret International Airport to speed up the verification of their consignments. However, it has also emerged that the KRA is nabbing tax cheats, who have been evading tax while selling the devices to Kenyans. This may be the primary reason the imports are yet to be cleared.

Walinasa a friend of mine
Wakafreeze accounts zake zote 😂. Ogopa

— 🇰🇪Kype Computers Ltd🇹🇿 (@kype_computers) July 19, 2023
[Don’t go to pick up your cargo (held by KRA) if you have been skirting taxes. They nabbed my friend and froze his bank accounts]

Smartphone vendors who have been skirting their tax obligations are about to hit hard times ahead. The days of enjoying lucrative business without proper taxation are coming to an end. With the implementation of taxation measures, their once-thriving businesses will likely experience a significant slowdown. This could see fewer players in the industry, and the end customer will pay more for previously affordable devices.