Manufacturers plead with Ruto to cut Excise duty

Manufacturers are appealing to the government to put on hold the implementation of the inflation adjustment, saying it is not sustainable.

Kenya Revenue Authority (KRA) is expected to adjust excise duty rates for specific products, effective October 1.

This is at a rate of 6.3 per cent (average inflation rate for the financial year 2021/2022) as determined by the Kenya National Bureau of Statistics (KNBS).

It will see prices of petroleum products, motorcycles, alcoholic and non-alcoholic beverages, bottled water, cosmetics, SIM cards (which were recently listed as excisable less than three months ago) and confectionary products go up.

Also to be affected are tobacco and nicotine products and raw hide and skins where taxes will go up by the set rate, with consumers shouldering the price increase.

This comes barely three months after the Finance Act 2022 increased excise tax rates go up by between 10 per cent and 20 per cent , effective 1st July 2022, for some of the products with alcoholic beverages being the hardest hit.

A further increase of 6.3 per cent within three months will result in a massive 16.3 per cent to 26.3 per cent cumulative tax increase in one year, the Kenya Association of Manufacturers (KAM) says.

“Such an increase will significantly impact on mwananchi, who is already overburdened by the ever-increasing cost of living,” KAM chief executive Anthony Mwangi said yesterday.

Since 2018, the cumulative increase in annual inflation has risen to 26.56 per cent.

The latest taxes will add up to the already high cost of raw materials and intermediary inputs which has increased by 15- 20 per cent due to global commodity price hikes.  

Furthermore, import costs have increased due to the weakening Kenyan shilling.

“Fuel prices have also reached a historic high, with a large portion constituting taxes and levies, resulting in a high distribution cost and further increasing the price at which a consumer buys the locally manufactured product,” Mwangi said.

According to manufacturers, the continued rising cost of doing business, mainly occasioned by high taxation is giving an edge to neighbouring countries who are finding a cheaper market in the country.

“The hash tax regime is a zero-sum game that has shifted manufacturing to our East African Community neighbours who are now exporting to Kenya,” KAM said.

The inflation adjustment will also stifle Small and Medium Enterprises (SMEs), who are considered the backbone of job creation and the economy at large.

SMEs are one of the Kenya Kwanza government’s key focus areas under its Bottom-up Economic Transformation Agenda 2022 – 2027.

It singles out regressive taxation, bureaucracy and regulatory compliance costs as the biggest impediment to getting Kenya out of the “economic hole” the country is currently in.

Yesterday, KAM said it is identifies with the current government’s manifesto, even as it called for a review and rationalising of all business licenses, to cap total licensing costs at 1.5 per cent of turnover fees.  

“Implementing the tax increase goes against the government’s intention to reduce the cost of living, support agriculture through agro-industry value chains, support the growth of SMEs and create jobs for Kenyans,” Mwangi said.

Last week, service sector players warned of impending massive lay-offs as traders adjust to low sales and high cost of doing business.

At least Sh15.7 billion is expected to be lost in employment income on about 35,364 jobs which will be lost, the  Bars, Hotels and Liquor Traders Association (BAHLITA) said.

The taxes which came with the Finance Acy have already led to a decline of 21 per cent and 32 per cent in barley and sorghum-based beers, respectively, the association notes.

“There is a need to give investors time to recover from the effects of Covid-19. Two years down the line, the industry is still struggling to get back to its feet,” General secretary Boniface Gachoka said.