TOUGH TIMES

Prices to go up on high taxes, production costs – manufacturers

Asks government to review Finance Act, cut cost of production.

In Summary

•At least nine new taxes and levies have been introduced by the government in the current financial year.

•The government is also in the process of adjusting the rate of duty for inflation, set for October 1, which will affect the cost of basic consumer goods subject of excise duty.

Manufacturers are warning of price increases unless the government reviews some of the "punitive" taxes.

Manufacturers are warning of price increases unless the government reviews some of the "punitive" taxes.

This, coupled with freight charges that have tripled have pushed up the cost of raw materials and finished products, says the Kenya Association of Manufacturers (KAM).

The association said the increased cost of doing business will be passed on to consumers through higher prices.

At least nine new taxes and levies have been introduced by the government in the current financial year.

They include a 10 per cent excise tax on articles of plastics, 10 per cent excise tax on imported resins and 10 per cent excise tax on super absorbent polymer (SAP), used in the manufacture of baby diapers.

Plant resins are valued for the production of varnishes, adhesives, and food glazing agents.

The government has also imposed a Sh200 per kilo excise tax on locally produced white chocolate, excise tax on imported fertilised eggs for incubation or hatching and a 16 per cent VAT on the supply of liquefied petroleum gas (LPG), including propane.

Further, the government is taking 16 per cent VAT from clean and improved cook stoves.

It has also imposed higher specific import duties for some categories of timber products and provision to limit interest to be deducted to a maximum of 30 per cent of Earnings Before Interest Tax, Depreciation and Amortisation. 

The government has also initiated the process of adjusting the rate of duty for inflation, set for October 1, which will affect the cost of basic consumer goods which are subject of excise duty.

In a notice issued on August 10, Kenya Revenue Authority (KRA) Commissioner General said the tax man would adjust the rate of excise duty using 4.97 per cent as the average inflation rate covering the 2020/21 financial year.

The adjustment has been subjected to stakeholder input through public participation ahead of the approval by National Treasury Cabinet Secretary Ukur Yatani.

It is expected to impact the cost of all excisable goods and services which includes fuel products, beer, wines and spirits, food supplements, fruit juices, bottled water, cigarettes and its substitutes and motor vehicle imports.

Telephone and mobile internet services alongside fees charged for money transfer services by cellular phone service providers, banks, money transfer agencies and other financial service providers are also set to be affected.

Unless the government revises these taxes, then the cost of living is going to rise because manufacturers at the end of the day will pass the cost to consumers,” KAM chief executive Phyllis Wakiaga said yesterday.

International freight charges have also gone up by up to 30 per cent, which the Shippers Council of Eastern Africa (SCEA) pegs on among others factors, the ongoing global shortage of vessels and containers.

While it would costs an average of $1,400 (Sh153,510) to ship a 40ft container from most ports to Mombasa, it has gone up to between$3,800(Sh416,670) and $4,000(Sh438,600).

Freight costs have more that tripled, prices of inputs are going up and this affects the cost of production. One thing we also need to know is that there is no taxes on manufacturers because the final price will be paid by the consumer,” KAM chairman Mucai Kunyiha said.

The two spoke in Nairobi yesterday, during a forum on rising cost of production and consumer goods, mainly being driven by global trade factors, high global oil prices, a weaker shilling against the dollar and taxation.

Kunyiha described the latest taxes introduced in the Finance Bill 2021 as “self inflicted.”

KAM has called on the government to review the new taxes , remove taxes on raw materials, to spur local manufacturing and ease the cost of production which will ultimately lower prices of finished goods.

The cost of living in the country has been on an upward trend with month-on-month overall inflation recorded at 6.44 per cent in July, up from 6.32 per cent in July, 5.87 per cent in May and 5.76 per cent in April–Kenya National Bureau of Statistics

Last month, the Consumers Federation of Kenya (COFEK) called on the President to request parliament to review the Finance Act.

We need to ease the cost of living especially by dropping added taxes on cooking gas, fuel and essentials foodstuffs,” Secretary-General Stephen Mutoro said.