The government’s efforts to recover Sh64 billion in suspected revenue lost through the misdeclaration of edible palm oil have stalled, with a parliamentary committee’s investigation going silent two years after it was launched.
The probe by the National Assembly’s Finance and National Planning Committee has been hampered by the failure of key witnesses to appear including former Kenya Revenue Authority (KRA) commissioner-general Humphrey Wattanga, alleged obstruction by National Treasury Cabinet Secretary John Mbadi and the committee’s failure to finalise its report.
The committee chaired by Molo MP Kuria Kimani launched the investigation two years ago after receiving intelligence that the government was losing billions of shillings through the misdeclaration of imported palm oil.
Former Kenya Revenue Authority Commissioner General Humphrey Wattanga.
Photo credit: Lucy Wanjiru | Nation Media Group
Mr Wattanga, who was KRA boss at the time, was summoned to appear before the committee at a meeting on September 24, 2024. However, the committee sent him away over the manner in which the documents he presented had been prepared.
Requests for his appearance before his exit from KRA had previously been frustrated by either his failure to honour committee invitations or requests for more time that never materialised.
On Monday, the committee chairperson did not respond to inquiries on when the committee would conclude the investigation and table its report in the House.
At one point, Mr Kimani identified CS Mbadi as the biggest impediment to the probe accusing him of failing to honour committee invitations to provide the required information.
National Treasury Cabinet Secretary John Mbadi.
Photo credit: File | Nation Media Group
CS Mbadi did not respond to inquiries sent to his known phone number regarding the allegations against him.
“We are disappointed with the National Treasury because it is making the committee unable to discharge its mandate. We have so many matters pending before the committee, yet we cannot move,” Mr Kimani said as other committee members also expressed frustration.
“This committee has lost meaning,” said Turkana South MP John Ariko.
Kitui Rural MP David Mwalika said: “It is disheartening to start an investigation on a matter, then it disappears because some people cannot honour the committee’s summons.”
Documents from the Parliamentary Budget Office (PBO) presented to the committee show that the government lost Sh16.5 billion in revenue in 2022 from the misdeclaration of 233,000 metric tonnes of palm oil.
In 2023, the government lost a further Sh32.54 billion in revenue from 387,868 metric tonnes of misdeclared imports. In 2024, it lost Sh13.83 billion from 163,567 metric tonnes imported by the time of the assessment.
The documents reveal that the alleged misdeclaration is carried out in two ways to evade import duty at the Port of Mombasa.
National Assembly Finance and National Planning Committee chairperson Kuria Kimani.
Photo credit: File | Nation Media Group
One method involves blending 60 per cent crude palm oil with 40 per cent refined palm olein, then declaring the entire shipment at the port as crude palm oil, thereby avoiding the higher import duties applicable to refined products.
Besides KRA, the Finance Committee had listed the Kenya Bureau of Standards (KEBS), Government Chemist, Agriculture and Food Authority (AFA), Kenya Ports Authority (KPA) and private laboratory Intertek for questioning. None has appeared before the committee.
Also lined up for interrogation were the consignees Vipingo, Mazeras, ACEE, Mvita Oils, LDC Kenya, LDC PTA Asia and the National Treasury.
“It has been observed that a large-scale tax evasion scheme is taking place at the Mombasa Port involving misdeclaration of refined edible palm oil as crude palm oil,” the PBO document states.
It adds that “LDC Kenya has been implicated in misdeclaring palm oil shipments for their clients intended for Kenya, Uganda, Tanzania and Rwanda.”
Under Kenyan law, imported refined edible palm oil attracts a 35 per cent import duty, while semi-refined palm oil is subject to a lower 10 per cent duty.
Imports are also liable for a 2.5 per cent Import Declaration Fee (IDF), a 1.5 per cent Railway Development Levy (RDL) and 16 per cent Value Added Tax (VAT).
“These taxes are meant to protect local industries by encouraging the import of crude palm oil, which requires further processing domestically, thereby adding value and generating employment,” the PBO document says.
By allegedly declaring refined palm oil as crude, importers avoid the 35 per cent import duty applicable to refined products. Blending refined and crude palm oil also reduces processing costs, further benefiting importers.
The blending of 40 per cent refined palm oil with 60 per cent crude palm oil in the same ship tanks also violates World Customs Organization guidelines, according to the PBO.
The guidelines provide that adulterated cargo cannot be classified as crude palm oil, meaning duties should apply to the entire shipment.
The practice also benefits exporters, who save USD28 per tonne when shipping the cargo from Indonesia and Malaysia. The two countries account for about 85 per cent of global palm oil production.
Indonesia and Malaysia impose a USD70-per-tonne export tax on crude palm oil to promote local value addition, while refined oil is exempt from the export duty.
“This allows importers to save USD70 per ton when exporting refined palm oil from these countries,” the PBO document states.
By allegedly misdeclaring refined palm oil as crude in Kenya, importers can therefore benefit both from lower export costs and by avoiding the higher import duty applicable to refined oil.
The blending of the two products also reduces processing costs because less work is required at the destination, giving the importers an additional cost advantage over competitors.
