Retain tax relief beyond January, government urged

Manufacturers in Kenya want the government to retain the Covid-19 tax relief beyond January.

This includes the VAT at 14 per cent , Income Tax Rate (Pay-As-You-Earn) at 25 per cent and Resident Income Tax (Corporation Tax) at 25 per cent, in place since April as part of cushioning individuals and companies from adverse effects of the pandemic.

The Tax Law (Amendment) Act, 2020 also gave a 100 per cent tax relief for persons earning up Sh24,000 and reduction of Turnover Tax rate for SMEs from three per cent to one per cent.

Last Friday, National Treasury CS Ukur Yatani said effective January 1,  the Corporate Tax rate will revert to 30 per cent with VAT going back to 16 per cent.

“However, the government will continue to cushion the low-income earners, by retaining 100 per cent tax exemption/relief for those earning monthly incomes of Sh24,000 and below,” Yatani said.

The Kenya Association of Manufacturers(KAM) however yesterday said the economy is still recovering from the brunt of the pandemic, with key sectors among them manufacturing yet to recover, hence the need to sustain the tax base at lower rates.

“At present, businesses are still reeling from Covid-19 pandemic shocks. We urge government to retain these measures, since businesses, and Kenyans are still suffering from shocks arising from the virus,” KAM chairperson Mucai Kunyiha said.

In addition, through the Finance Act, 2020, government seeks to introduce a one per cent (1%) Minimum Tax to bring more enterprises into the tax bracket, despite their financial status, a move KAM is opposed to.

“Introducing more taxes will worsen an already grim situation. Minimum tax will deter start-ups, increase consumers’ costs and cause the shrinking or closure of businesses. We, thus, recommend abolishing the tax,” Mucai told the Star.

A survey by the Kenya Private Sector Alliance (Kepsa), released late last month, indicated loss of customers for the manufacturing sector was at 88 per cent, market access challenges (63%) and difficulties collecting accounts receivable, that is bills and tax refunds, at 63 per cent.

KAM has called for a predictable policy environment to help stabilise the sector, a key pillar in President Uhuru Kenyatta's Big Four Agenda.

“In order to increase the resilience of local industry, predictable and stable policy initiatives are critical. This entails the development of succinct fiscal and regulatory policies and initiatives that encourage investments in the sector,” CEO Phylllis Wakiaga said.

The association's membership constitutes 40 per cent of manufacturing value-add industries in Kenya and comprises of small, medium and large enterprises.

Over 80 per cent of these are based in Nairobi, while the rest are located in other major towns and regions, including Coast, Nyanza, Western, Nakuru, Eldoret, Athi River, Nyeri and Thika.

“Our focus now as a country should be overcoming the pandemic. This will also enable other sectors of the economy to recover from its effects,” Mucai said.

The quarter three Manufacturing Barometer indicates 33 per cent of local manufacturers have a positive outlook of the economy, for the fourth quarter (October-December 2020).

About 44 per cent of surveyed manufacturers expect a positive performance of their businesses between October 2020-March 2021.

The National Treasury is however keen to return to the traditional tax levels as the relief is expected to see government forgo tax revenues totalling Sh65 billion by December 31.

Kenya Revenue Authority has also been struggling to raise revenues as a result of the pandemic which has hit different sectors of the economy, putting government under pressure of accumulating debt to bridge its budget deficit.