Queries over unpaid cement levy billions
Audit reveals cement firms have failed to remit more than Sh2 billion in levies.
The Mining Department is on the spot after an audit revealed that cement firms had failed to remit more than Sh2 billion in levies.
Official revenue records show that arrears by various companies had accumulated to Sh2.11billion as of June 30, 2021 — shining a spotlight on the Mining department and a host of cement firms such as East Africa Portland Cement Company (EAPCC), Savannah Cement and National Cement.
Included in the levy arrears is some unreported Sh404.75 million owed by EAPCC that accrued in the financial years 2014/2015 to 2020/202 with the Auditor-General warning the amount may be higher since the company management failed to have the levy collections assessed against the production volumes.
EAPCC has since 2018/2019 filed incomplete self-declaration assessments and was, therefore, not assessed for cement levy from 2018/2019 to 2020/2021 financial years.
“Management did not provide any explanation on why levies that were due and chargeable to the company were not assessed in the relevant periods and reported in the financial statement. Under the circumstances, the recoverability and accuracy of the Sh404,759,572 as at June 30,.2021 could not be ascertained,” Auditor-General Nancy Gathungu said in a report tabled in Parliament last week.
The billions of shillings in unpaid cement levy as of June 30, 2021 also included a Sh370.86 million long-standing debt due from Savanna Cement.
Although a payment agreement was signed in August 2017 between the department of and the company requir-ing settlement of the arrears in 24 monthly instalments starting from September 2017, the company had reneged on the plan, stating that it did not hold a mineral licence from the State department and, therefore, was not lia-ble to pay the levy.
The company had also moved to the High Court challenging Legal Notice No. 22 of 2013 that required payment of cement minerals levy by all cement-producing companies in Kenya.
Although management indicated that consent has been recorded in court for settling the matter, the same was not provided for audit review.
“Further, the company has not filed any self-declaration assessment since 2018/2019 financial year to the time of the audit in February 2022 and has, therefore, not been assessed for cement levy. In addition, the company remitted Sh5,000,000 during the year, but the remittance was not supported by production and sales reports,” Ms Gathungu said.
“Under the circumstances, the recoverability of the Sh370,862,635 as at June 30,2021 could not be confirmed,” she added.
The Auditor-General also flagged irregular underpayment of cement levy by National Cement.
“The statement of receipts and disbursements for the year under review reflects cement levy receipts amounting to Sh882,501,151. The receipts include Sh289,263,087 received from National Cement Company Limited,” she said.
“However, analysis of production reports from the company revealed a variance of Sh51,181,322 between ce-ment levy remitted to Ministry of Petroleum and Mining and the levy due on production,” she added.
Ms Gathungu said that a further review of records of the State Department in respect of the National Cement revealed that on March 4,2021, the Cabinet Secretary through a letter granted consent to the company of a re-duced cement levy at a rate Sh100 per tonne instead of Sh140.
“However, Section188(2) of the Mining Act,2016 requires the Cabinet Secretary to make regulations to provide for conditions and criteria for determining application for reduction or suspension of payment of royalties which had not been done at the time of granting the reduction and have also not been done by the time of the audit in February 2022,” she said.
“In addition, it was not clear why the levy rate of Sh100 applied to one company while the sector had several players manufacturing the same product,” the Auditor-General further stated.
The cement levy has been controversial since it was introduced in 2014 amid concerns that it may raise the cost of products and render the industry uncompetitive.
In a gazette notice signed on December 18,2014, then Mining Secretary Najib Balala made the new levy effec-tive but also cancelled a previous notice that had pegged the levy to one per cent of turnover.
In the directive, the State said the levy would apply to both miners and importers of cement, unlike the previous proposal which was to affect local producers only.
Kenya’s cement consumption has been rapidly growing owing to a fast-growing construction sector driven by major State-funded roads and infrastructure projects as well as a private sector-led housing construction boom.
Cement consumption hit nine million tonnes in 2021 up from 5.8 million tonnes in 2017, according to the 2022 Economic Survey.
Construction of mega-public projects such as the 27.1km Nairobi Expressway, the upgrade of James Gichuru-Rironi highway, the dualling of the Kenol-Marua road, the Nairobi Western Bypass, and the affordable housing projects boosted cement use in the country last year.
Other construction projects are Mombasa’s Dongo Kundu bypass, the Eldoret bypass, and the Lamu Port.
