Abstract

The East African Community (EAC) was established in 1999 and the partner states to the EAC treaty agreed to eliminate by 2010 internal tariffs based on the principle of asymmetry. The partner states also agreed to set a three-band Common External Tariff (CET) with 0% for raw materials, capital goods and agricultural inputs; 10% for intermediate goods and essential industrial inputs and 25% for finished Consumer products.  The EAC Partner states including Kenya adopted the use of Stay of Application of EAC CET and Duty remission schemes as a way of protecting infant domestic industries and boosting manufacturing for export. In view of increased state revenues collection by Kenya Revenue Authority (KRA) and the ballooning government expenditure, Kenya has been operating on deficit financing which has prompted the Government of Kenya (GoK) through Treasury to opt for foreign loans borrowings to bridge the existing revenue gap. The purpose of this research was to undertake a comparative evaluation of the impact of Stay of applications and Duty remission schemes on Customs revenue at KRA. The General Equilibrium Theory of Effective Protection and Resource Allocation and the Optimal Tariff Theory are the theoretical framework that underpinned this research. The research adopted explanatory research design using quantitative approach and relied on secondary data sourced from KRA Customs department.  From the findings of the simple regression analysis, it was established that both Stay of Applications of EACCET and Duty Remission Schemes accounted for Customs Revenue Collection Forgone by KRA. However, Duty Remission Schemes accounted for more variance in the forgone Customs Revenue by KRA compared to the Stay of Applications of EACCET.  It was also established that for every unit increase in Stay of Applications of EACCET, there was a 14.920 Currency units increase in Customs Revenue Collection Forgone by KRA. Likewise, it was also established that for a unit increase in Duty Remission, there was a 43.829 Currency units increase in Customs Revenue Collection Forgone by KRA other factors held constant. Therefore, the study concluded that Duty remissions accounted for more variance in the Customs Revenue Collection Forgone by KRA.  At the same time, increased usage of country-level deviations from the common tariff schedule through Stay of Application of EAC CET and Duty remission schemes has rendered the Common External Tariff of the Customs union less “common” negatively affecting Customs revenues. From the research findings, it was established that use of Stays of Applications EACCET’s as well as the high uptake of the Duty Remission by local entities have negative impact in terms of Customs revenue forgone.  To safeguard Customs revenue, the research recommended that the GoK through its representatives in the Duty remission Committees and EAC Council should ensure that there is no double uptake of both Duty Remissions and Stays of Applications of EACCET by the same entities