Kenya’s Smartphone Sellers Are Low On Stock And Sales Amid Shakeup

The Kenyan mobile phone market is facing a significant challenge as reports of stock shortages at phone shops continue to emerge, signalling disruptions in the supply chain. Shop owners are attributing this situation to recent changes made by the Kenya Revenue Authority (KRA) in the treatment of imports, specifically concerning smartphones and other excisable goods.

Since June 1, smartphones have been reclassified for taxation purposes from a per kilogram consideration to a per unit value consideration. This shift was prompted by the discovery of concealment practices, where some importers were falsely declaring smartphones as feature phones to benefit from lower tax rates.

KRA acting Commissioner-General Rispah Simiyu told NTV in an interview that the tax office had discovered importers were passing off smartphones as feature phones in order to avoid paying the required tax.

“One example is an item that was cleared and duty was paid of about KES 85 K but subsequently as a result of the 100 percent verification additional duty of about KES 700 K was collected,” said Ms Simiyu.

The KRA’s decision aims to ensure a more accurate and transparent assessment of taxes on smartphones and curb potential tax evasion. However, this change has resulted in a surge in tax liabilities for certain importers.

The weak shilling, which on Wednesday traded at a low of KES 141.59 against the US dollar, has made this issue worse by making traders pay more for smartphone orders. Reduced demand and high pricing have hurt Kenya’s smartphone business as importers pass along the increased import costs to consumers.

According to data published in March by International Data Corporation (IDC), the number of smartphones imported in the three months ending in December of last year decreased by 13.5 percent from the same quarter in 2021, the second straight quarterly decline in 2022.

Due to the recent decline in sales and the resulting decrease in revenues, mobile phone dealers are being severely impacted by their high prices. Kenya’s leading telecom company, Safaricom, for instance, recently saw a fall in phone sales income of 15.1 percent as consumers held off on buying the devices due to price increases.

These shocks, coupled with the recent KRA crackdown and the weakening of the local currency, are likely to exacerbate the smartphone sales slump in the upcoming quarters. Another factor that has been hinted at in industry circles is that some smartphone sellers have refrained from restocking fully having become increasingly wary of looters as the country witnesses a spate of ongoing protests over living conditions that might get ugly.

As it is, phone shop owners are struggling to restock their shelves, leading to a sharp decline in sales since the beginning of the month. Existing stocks of smartphones are being held up at the airport due to uncertainties surrounding their taxation and clearance. This situation has left many shop owners with minimal revenue to cover essential expenses, such as rent and employee salaries.

There are growing concerns about the impact of the stockouts on phone shop owners amid fears that many will face challenges paying rent and wages having sold little or nothing during the month.

The recent changes in taxation by the KRA have led to confusion and disruptions in the Kenyan mobile phone market, with shop owners and retailers grappling with higher costs and difficulties in acquiring new smartphone stocks. The KRA’s move is intended to address tax evasion, but its immediate consequence has been a strain on the industry’s supply chain and the financial stability of phone shop businesses.

Featured Image Credits: Business Elites Africa