High Taxation Impedes Computer Assembly Trade in Kenya

Computing

High duty on computer parts is hindering the development of a vibrant assembly industry. While tariff on finished computers is zero rated, most components and peripherals still attract high duty.

LCD or LED panels, capacitors, resistors, and printed circuits attract a 15 per cent duty, while monitors are subject to a 25 per cent tariff. The tariff structure means that a local assembler cannot compete against a zero rated finished unit. Besides the tariff, the many applications that a component can be put to means enforcement is at the discretion of the customs official, making the process prone to abuse.

Dr Bitange Ndemo, the Permanent Secretary in the Ministry of Information, said the inconsistencies had slowed down an otherwise vibrant industry, limiting the opportunities to large and established companies. Dr Ndemo said that although the ministry had proposed to Treasury before this years Budget that computer tariffs be zero rated, the Comesa tariff rules prohibit the move.

Policy changes and reversals have also sent mixed signals to investors, especially in Export Processing Zones, who have to pay a 2.5 per cent levy on assembled units sold in the domestic market.

Mercer Computers, a South African firm which had been assembling computers in the export processing zone announced in mid 2004 that it would close its operations in Kenya because of the duty. Instead, it would be importing complete computers from South Africa, which does not charge duty on computer and computer parts.

The growing demand for IT products and services has prompted the mushrooming of assemblers in computers and telecommunications equipment. It is estimated that 30 per cent of Kenya's computer requirements are locally assembled.

Business Daily