Why Sh64 billion palm oil probe has gone silent in parliament

Dark side of Kenya’s palm oil import business is emerging as a major concern after a parliamentary investigation into suspected revenue losses of Sh64 billion stalled, leaving questions over how billions of shillings may have slipped through the country’s tax system.

The investigation was launched by the National Assembly’s Finance and National Planning Committee after intelligence indicated that imported edible palm oil was being deliberately misdeclared at the Port of Mombasa. Two years later, however, the inquiry has yet to produce a final report.

Read Also: Pharmacy Board Looks to Shape Future of Pharmaceutical Practice

The probe has been frustrated by the failure of key witnesses to appear before the committee, disagreements over documents presented to lawmakers and allegations that the National Treasury has failed to cooperate with the investigation.

“We are disappointed with the National Treasury because it is making the committee unable to discharge its mandate. We have so many matters pending before the committee, yet we cannot move,” Molo MP Kuria Kimani said as other committee members also expressed frustration as per Nation.

The remarks highlighted the growing frustration within the committee, which has been unable to conclude an investigation that could have major implications for Kenya’s revenue collection, the edible oils industry and the government’s efforts to combat tax evasion.

How the palm oil revenue loss allegedly happened

Documents presented to the committee by the Parliamentary Budget Office (PBO) indicate that Kenya may have lost billions of shillings through the alleged misdeclaration of palm oil imports between 2022 and 2024.

According to the documents, the government lost Sh16.5 billion in revenue in 2022 from the misdeclaration of 233,000 metric tonnes of palm oil.

The losses increased sharply in 2023, when the government is estimated to have lost Sh32.54 billion in revenue from 387,868 metric tonnes of misdeclared palm oil imports.

In 2024, the estimated revenue loss stood at a further Sh13.83 billion from 163,567 metric tonnes imported by the time of the assessment.

Combined, the figures point to an estimated Sh62.87 billion in lost revenue across the three years. The broader parliamentary investigation has, however, been associated with a Sh64 billion suspected revenue loss.

The alleged scheme centres on the classification of palm oil imported through the Port of Mombasa.

One method identified in the PBO documents involves mixing 60 per cent crude palm oil with 40 per cent refined palm olein. The entire shipment is then allegedly declared as crude palm oil, allowing importers to avoid the higher import duty imposed on refined products.

Kenyan law provides for a 35 per cent import duty on refined edible palm oil, while semi-refined palm oil attracts a lower 10 per cent duty.

Crude palm oil, meanwhile, is treated differently under the tax regime, with the policy intended to encourage domestic processing and value addition.

Imports are also subject to a 2.5 per cent Import Declaration Fee, a 1.5 per cent Railway Development Levy and 16 per cent Value Added Tax.

The difference in taxation creates a significant financial incentive for importers to classify products under the lower-duty crude palm oil category.

The PBO described the alleged practice as a large-scale tax evasion scheme at the Mombasa Port.

“It has been observed that a large-scale tax evasion scheme is taking place at the Mombasa Port involving misdeclaration of refined edible palm oil as crude palm oil,” the PBO document states.

The documents further raise questions about the role of companies involved in the supply chain, including importers, consignees, laboratories and government agencies responsible for inspection and regulation.

Parliament’s investigation hits a wall

The committee had identified several institutions and individuals for questioning as lawmakers sought to establish how the alleged misdeclaration was taking place and why it had not been detected or stopped.

Among those listed were the Kenya Revenue Authority, Kenya Bureau of Standards, Government Chemist, Agriculture and Food Authority, Kenya Ports Authority and Intertek, a private laboratory.

The committee also lined up several consignees, including Vipingo, Mazeras, ACEE, Mvita Oils, LDC Kenya and LDC PTA Asia, alongside the National Treasury.

However, none of the listed institutions and entities had appeared before the committee at the time of the latest developments cited in the investigation.

The absence of key witnesses has been one of the biggest obstacles facing the inquiry.

Former Kenya Revenue Authority Commissioner-General Humphrey Wattanga was among the key figures the committee wanted to question.

Mr Wattanga had been summoned to appear before the committee on September 24, 2024. However, lawmakers sent him away over concerns about how documents he had presented had been prepared.

His appearance had already been delayed before then, with previous requests for him to appear reportedly frustrated either by his failure to honour committee invitations or by requests for additional time.

The former KRA boss subsequently left the tax agency, further complicating efforts by lawmakers to obtain answers from him.

The committee has also pointed fingers at National Treasury Cabinet Secretary John Mbadi.

At one point, Mr Kimani identified CS Mbadi as the biggest impediment to the investigation, accusing him of failing to honour invitations to provide information required by the committee.

“This committee has lost meaning,” said Turkana South MP John Ariko.

Kitui Rural MP David Mwalika also expressed frustration over the stalled investigation.

“It is disheartening to start an investigation on a matter, then it disappears because some people cannot honour the committee’s summons.”

CS Mbadi did not respond to inquiries sent to his known phone number regarding the allegations against him.

The lack of a final report means Parliament has not yet publicly established the full extent of responsibility for the alleged revenue losses or whether any individuals or institutions should face sanctions.

The committee chairperson also did not respond to inquiries on when the investigation would be concluded and when its report would be tabled before the House.

Why the palm oil tax dispute matters

Beyond the political standoff in Parliament, the controversy highlights the complexities surrounding Kenya’s edible oils sector and the tax policies designed to encourage local manufacturing.

The government’s taxation framework seeks to discourage the importation of fully processed products while encouraging businesses to bring in crude materials that can be processed locally.

The policy is intended to create employment, promote local industries and increase domestic value addition.

The PBO documents, however, suggest that the alleged misdeclaration undermines that objective by allowing refined palm oil to enter the country while benefiting from the tax treatment reserved for crude products.

The alleged blending of refined and crude palm oil also raises questions about compliance with international customs standards.

According to the PBO, World Customs Organization guidelines provide that adulterated cargo cannot be classified as crude palm oil. Instead, duties should apply to the entire shipment.

The alleged practice may therefore create advantages at several stages of the international supply chain.

Indonesia and Malaysia account for about 85 per cent of global palm oil production, according to the information presented to the committee.

Both countries impose a USD70-per-tonne export tax on crude palm oil as part of efforts to encourage domestic value addition. Refined palm oil, however, is exempt from that export duty.

This creates another potential financial incentive for exporters and importers.

The PBO document states that the arrangement allows importers to save USD70 per tonne when exporting refined palm oil from the two countries.

If the refined product is subsequently declared as crude palm oil after reaching Kenya, the importer could potentially benefit from both the lower export costs and the lower Kenyan import duty.

The alleged blending also reduces processing costs because less work is required after the shipment reaches its destination.

That combination could give businesses involved in the trade a significant cost advantage over competitors operating within the law.

If refined products are routinely brought into the country under the lower-duty crude classification, local processors could face unfair competition from importers benefiting from lower costs.

The alleged practice could also undermine government efforts to develop domestic manufacturing and value addition within the edible oils sector.

The parliamentary probe was therefore expected to establish how the alleged scheme operated, identify the companies and officials involved, determine the extent of revenue lost and recommend measures to prevent similar practices.

Instead, the investigation has remained unfinished.

The Sh64 billion palm oil question now sits among the pending matters facing Parliament’s Finance and National Planning Committee.

Until the committee completes its work and tables its findings, questions will remain over how such large volumes of imported palm oil allegedly passed through the country’s customs system and whether the revenue losses could have been prevented.

The prolonged silence also raises a broader question about Parliament’s ability to hold government agencies and private actors accountable when investigations involve complex commercial transactions and significant public revenue.

The next step now rests with the parliamentary committee. Its eventual report could determine whether the alleged palm oil misdeclaration was the result of loopholes in Kenya’s tax system, failures in enforcement or deliberate actions by individuals and companies seeking to evade taxes.

Until then, the suspected Sh64 billion revenue loss remains one of the most significant unresolved questions surrounding Kenya’s edible oils trade.