The Shippers Council of East Africa (SCEA) has supported the Treasure’s plan to impose a 20 per cent withholding tax on demurrage charges paid to foreign shipping lines, saying it will discourage unfair practices.
In the new tax measures proposed by Treasury secretary Henry Rotich last week, the income tax will be amended to subject payments for demurrage charges made to non-resident persons to withholding tax at a rate of 20 per cent.
This means that foreign shipping firms will be pay a 20 per cent of the demurrage charges they receive to the government.
“Unlike before where shipping lines charged detention charges on container deposits to shippers without government oversight with withholding tax, the amounts are declared thus discouraging unfair practices that we have experienced over time,” SCEA chief executive Gilbert Langat said in an interview on Tuesday.
“The amounts collected by Kenya Revenue Authority on the new tax proposal will form the basis for the private sector to push for efficiency.
“It doesn’t necessarily increase the cost to the shipper but may discourage unfair practices by some lines,” he said.
Demurrage refers to fees charged for late return of containers to their owners.
The fee is charged to compensate container owners for profit they would have made during the time lost.
The Kenya Revenue Authority insists that demurrage fees are part of freight charges as they only begin to accrue once goods have been cleared in the country of destination.
The taxman indicates that Kenya’s laws classify demurrage as gains or profit from a right granted to another person for use or occupation of property, which by definition is rent, loyalties or premium and liable to withholding tax.
But foreign shipping firms with Kenyan subsidiaries say that demurrage is part of freight costs.
Ocean Freight Limited, for instance, has argued in the past that other authorities in the world — particularly the Philippines Tax Appeal Court — have ruled that demurrage fees are regular income subject to regular tax.
According to an analysis of the Bill by Deloitte Kenya, the added tax burden is likely to negatively affect business in the country and decrease its competitiveness in the shipping business.
As a result, the affected companies are likely to hike freight charges, passing the additional costs to consumers.