New Bill to reduce Mombasa port’s competitiveness

Mombasa port is the largest in East Africa and contributes over 40% of Kenya’s revenue.

A new Finance Bill proposed by the Kenyan government this year could hurt the revenues of the Port of Mombasa by decreasing its competitiveness.

If passed the legislation will introduce withholding tax (WHT) on demurrage paid to non-resident shipping lines at a rate of 20% on the gross demurrage amount, according to KPMG tax advisor Regina Mwangi.

The tax recommendation was made by government as a way to boost revenues for the government to be able to finance its 2018/19 budget.

“The introduction of WHT on demurrage paid to non-resident shipping lines will lead to an increase in the cost incurred by importers,” said Mwangi.

“This is because non-resident shipping lines will in all likelihood pass on the tax burden to shippers, further increasing their costs and making an already tough business environment even tougher.”

She noted that shippers already incurred thousands of dollars in demurrage every year with current demurrage charges at Mombasa set at US$10 per 20-foot container per day after the expiry of the free period and US$20 per day for 40-foot containers. These costs rise daily and can ratchet up to more than US$100 per day in some cases.

Delays at Mombasa port and inland container depots could result in shippers opting to use alternative ports such as Dar es Salaam to save on demurrage costs.

“With Dar es Salaam and Mombasa ports charging almost the same rates, the choice of which port to use boils down to how fast goods are cleared,” Mwangi said.

“Clearly, delays resulting in demurrage charges fetch penalties that businesses can ill-afford, especially in this era of cutthroat competition and a drive to preserve razor-thin margins.”

She pointed out that delays at the port would be inevitable as the port’s volumes exceed its throughput capacity – up to 500 000 TEU – by a factor of more than two which means significant capacity must be added to meet the port’s future demands.

Mwangi said that delays at Mombasa port were largely attributable to delays in customs clearance processes, landside connections not able to evacuate containers quickly enough and freight providers charging clients demurrage for the additional time that customers kept containers.

“Imagine a situation of transhipment and the demurrage costs are to be borne by a non-resident shipper, who would be expected to account for the tax – the administrative complexity will be daunting,” she added.

“It would be wise for the government to reconsider this proposal, if nothing else, to safeguard the competitiveness of Mombasa port.”

More News