A shipment of 27,839 tonnes of raw sugar entered Kenya from South Africa for Mombasa Sugar Refinery Limited, setting off a customs dispute that has now placed Treasury Cabinet Secretary John Mbadi, the Kenya Revenue Authority and several state agencies under parliamentary pressure.
The consignment, valued at about Sh1.5 billion, was declared as industrial raw sugar meant for further processing, a classification that would allow the importer to pay a much lower rate than sugar entering the country for direct human consumption.
Customs officers tested the shipment and rejected the tariff classification presented by the importer, leading KRA to demand taxes estimated at roughly Sh2.9 billion before the cargo could receive clearance under the disputed industrial sugar category.
The tax position later changed after a meeting called by the National Treasury, with the customs declaration reportedly showing zero import duty and KRA explaining the entry as a mistake caused by its computer system.
That explanation has raised serious questions because the disputed declaration did not involve a minor clerical charge, but a consignment carrying tax obligations that could have delivered billions of shillings to the public purse.
KRA later placed the revenue lost through the Import Declaration Fee and Railway Development Levy alone at Sh104,090,404, before VAT, excise duty, sugar levies and other charges connected to the import were included.
Once all the taxes and levies are counted, the total revenue reportedly forgone reaches about Sh2.98 billion, which is nearly twice the declared value of the sugar brought into the country.
Mbadi has defended the Treasury intervention using public interest and the protection of jobs, arguing that allowing the refinery to receive the sugar would protect workers and keep its operations running.
That defence has failed to settle the matter before the National Assembly Committee on Trade, Industry and Cooperatives, which is now seeking records showing how the original KRA assessment disappeared after Treasury entered the dispute.
Committee chairman Bernard Shinali has demanded correspondence between Treasury, KRA and the importer, together with minutes from the multi agency meeting that preceded the change in the tax treatment granted to the consignment.
The committee has requested laboratory reports from the Kenya Bureau of Standards, testing records from SGS, customs documents and records showing the source, producer and intended use of the imported sugar.
Questions have grown after MPs said documents identifying the actual manufacturer were missing, together with records showing when the sugar was produced and the date by which it should have been processed or consumed.
The missing paperwork matters because raw industrial sugar enters Kenya under special conditions, with the lower duty based on the promise that it will undergo further processing instead of being packed and sold directly to consumers.
Kenya Sugar Board officials told Parliament that KEBS tests found the shipment suitable as raw sugar for further refining, but not as finished sugar ready for direct consumption in shops and homes.
The same officials said the cargo had remained secured inside a customs bonded warehouse and had not been released into the local retail market, though MPs demanded documents proving every movement of the consignment.
Shinali told the officials that Parliament had not received the clearance records showing who authorised the movement of the sugar from the Mombasa warehouse to another storage location reportedly located in Nairobi.
The dispute now has two connected parts, with Parliament examining whether the sugar met the conditions for lower import taxes and whether the Treasury had lawful grounds to interfere with the assessment made by customs officers.
At the centre of the first issue is the tariff classification used by Mombasa Sugar Refinery, since a lower industrial rate would save the company billions compared with the charges imposed on sugar entering Kenya for ordinary consumption.
The second issue concerns the meeting called by Mbadi, the officials who attended it and the decision that followed, since the tax demand changed after the importer took its case beyond ordinary customs channels.
KRA’s claim that a system error produced a zero duty declaration has made the matter more troubling, since tax systems ordinarily follow rates, classifications and instructions entered or approved by responsible officers.
Parliament must now establish whether the zero entry was corrected, who authorised the final clearance and whether any written exemption or waiver was issued by Treasury before the disputed taxes disappeared.
The committee must further establish whether Mbadi acted under a specific legal provision, or whether public interest was used as a broad excuse to protect one company from a tax assessment already raised by KRA officers.
Jobs can be protected without hiding correspondence, changing customs classifications or denying Parliament records showing why one importer received relief that ordinary Kenyan businesses would struggle to obtain.
The matter comes as Kenyan sugar farmers and local millers face high production costs, delayed payments and competition from imported sugar entering the country under rates meant for industrial processing.
A Sh2.98 billion tax loss cannot be dismissed as a computer problem, especially where customs officers had already questioned the importer’s classification and demanded payment before Treasury officials became involved.
The public deserves the full trail showing who contacted Treasury, who invited the agencies to the meeting, what each official recommended and who ordered KRA to abandon or reduce its original assessment.
Shinali’s committee must publish the correspondence, minutes, laboratory findings, customs entries and final tax calculations, rather than allowing the investigation to end with another closed meeting and a vague promise of further checks.
Until those records are produced, the central question remains unanswered, since Kenyans still do not know how a Sh2.9 billion customs demand became a zero duty entry after Treasury stepped into the case.
