PLEA

Review taxes to cushion local industries, state told

Most manufacturers operating below 50%

In Summary

•The poor performance is attributed to temporary shutdown of production plants or reduction in operational capacity given the reduced demand for goods and services.

•Local players are also struggling in an environment that is still witnessing high imports, with reduced access to credit hurting investments.

National Treasury CS Ukur Yatani (in grey suite) during a past tour of an Export Processing Zone at Ruaraka/
National Treasury CS Ukur Yatani (in grey suite) during a past tour of an Export Processing Zone at Ruaraka/
Image: FILE

The government has been urged to review a number of taxes to  save local industries from shutting down  due to the impact of Covid-19 on their businesses.

Majority of manufacturers in the country are operating below 50 per cent capacity during the Covid-19 period, a survey has shown and this coupled with a myriad of taxes threaten to cripple their operations.

The survey by the Kenya Association of Manufacturers (KAM) and audit firm KPMG indicates 53 per cent are operating below the mark, compared to a eight per cent before Covid hit the country.

 
 

The huge difference has been attributed to the temporary shutdown of production plants or reduction in operational capacity given the reduced demand for goods and services during the crisis.

Lack of procurement of locally manufactured products by the government and, in some cases, preference for imported products,  remains a major challenge, according to the survey.

Unpredictable policies from the government, particularly on taxation in the Tax Laws Amendment Act 2020 and the Finance Act 2020, is yet another concern for manufacturers,  who have called for a review. These include the minimum tax and 14 per cent VAT on plant and machinery.

Industry players are also concerned about the staggering of the investment deduction, removal of pharmaceutical products from VAT zero rate status to VAT exemption, and withdrawal of the electricity rebate program, among others.

“Manufacturers are still facing low domestic demand for their products and reduced risk appetite of commercial banks to offer credit to manufacturers,” KAM, led by CEO Phyllis Wakiaga has noted.

There is also slow response from regulatory agencies in approving innovations from local manufacturers, despite the pandemic bringing out a number of opportunities.

 
 

For instance, there is lack of standards for medical ventilators which has hindered commercialisation of innovations, and undermined manufacturers’ efforts to diversify production.

Further, the slow implementation of interventions already pronounced by the government, such as operationalisation of the Buy-Kenya- Build-Kenya strategy and the SME credit guarantee scheme, is worrying local players.

There is “unlevel playing field between locally manufactured goods and imported ones,” the survey released on Wednesday notes.

To support industries, KAM wants speedy operationalization of the Sh712 million SME fund proposed in the National Budget Statement 2020.

It has also called for deletion of tax provisions that will increase the burden to taxpayers, reversal of punitive tax policies as contained in the Tax Laws Amendment Act 2020 and Finance Act 2020.

Specifically, the one per cent (1%) minimum tax, VAT exemptions on pharmaceutical products, 14 per cent VAT on plant, machinery, and spare parts, and deferring the staggering of investment deductions on plant and machinery.

To increase resilience in the sector , KAM and KPMG have advised the  government to ensure long-term policy stability, particularly on taxation.

“A policy on taxation is required to ensure certainty and predictability,” Wakiaga notes.

The country also needs to develope selected domestic and regional value-chains to minimize exposure to external shocks, KPMG and KAM have adviced, and ensure an effective legislative and institutional framework to support research and development.