Kenya is bracing for a looming shortage of smartphones as the government’s recent crackdown on cargo consolidation, along with a weak shilling, has led to skyrocketing import costs. The Kenya Revenue Authority (KRA) initiated a 100.0% verification process for imports starting June 1, resulting in higher taxes based on the transaction value of cargo instead of the previous flat rate per kilogram.
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This move has taken a heavy toll on small-scale traders dealing in consumer goods like second-hand clothes, electronics, and household items, who are now burdened with increased clearance costs. Smartphone dealers have been hit particularly hard by the new tax regime, facing higher tax rates based on the gadgets’ transaction value. To evade these taxes, some importers have been concealing smartphones as feature phones, which carry a lower tax rate.
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Furthermore, the weakened shilling, trading at a low of 141.7 against the US dollar currently, has compounded the problem. Smartphone dealers now have to pay more for their orders, leading to a sharp increase in prices across all phone categories. This surge in costs has resulted in depleted stocks in shops, with many retailers unable to afford new inventory. Ongoing demonstrations in the country have also instilled fear in sellers, who worry about potential looting of their stores. As a consequence, Kenya’s smartphone market has experienced reduced demand, with imports falling by 13.5% in the three months leading up to December. The situation is likely to persist, given the fresh KRA crackdown and the depreciation of the local currency.
In response to the challenges, some smartphone distributors have moved their warehouses to Dubai in the United Arab Emirates (UAE) to lower operational costs, while others have shifted sales to neighbouring countries where costs are more manageable. Safaricom, a major telecom company, has reported a significant decline of 14.6%, to Kshs 10.5 billion in the year ending March 2002, from Kshs 12.3 billion recorded in the same period last year, in handset revenue due to customers avoiding purchases amid rising prices.
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Overall, the combination of increased taxation and currency depreciation has created a complex web of challenges for the smartphone market in Kenya. As traders grapple with higher costs and reduced revenues, the situation remains uncertain, prompting some to explore alternative markets with more favourable conditions.
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