•Food and beverage sector, metal sector pharmaceutical, paper and paper board and cement among sub-sectors to be affected, Kenya Association of Manufacturers says.
•This, they say will see the market flooded with cheaper imports from neighbouring countries.
Image: FILE
Kenya is likely to suffer from the flooding of cheaper imports from neighbouring countries if some proposals contained in the Finance Bill 2023 are passed, manufacturers have warned.
This is in the wake of increased imports where Uganda and Tanzania are already enjoying bigger market shares in Kenya, with retailers and traders at border towns preferring cheaper stocks from the countries.
National Treasury in its Finance Bill has proposed an increase in a number of taxes and levies that will push up the cost of various commodities in Kenya compared to regional markets.
According to the Kenya Association of Manufacturers (KAM) the food and beverage sector, metal, pharmaceutical, paper and paper board and cement sub-sectors will be most impacted.
Uganda and Tanzania have major sources of counterfeits and cheaper products mainly alcohol, juices, cigarettes and other non-alcoholic drinks.
The two countries are top source of Kenya imports within the EAC region.
In the last five years, the value of Kenya imports from Tanzania has increased significantly, from Sh18billion in 2018 to 54 billion in 2022, the Economic Survey 2023 shows, with Tanzania positioning itself to become the regional hub.
“If Kenya is not careful, the country will become a supermarket of the region,” KAM warned.
Products whose prices are set to increase include white chocolate, pasta, sugar confectionary, powdered juice, sugar, paper products and cement clinker.
Treasury wants introduction of excise duty at Sh249.29 per kg on imported white chocolate and other food preparations containing cocoa, excise tax of Sh42.91 per kg on sugar confectionary, 20 per cent excise duty on local pasta, and Sh25 per kilogramme excise duty on powdered juice.
Excise duty on fees charged on advertisement on television, print media, billboards, and radio stations has also been proposed at 15 per cent.
“This is heavy tax obligation on the alcoholic beverage manufacturers who are already overtaxed, especially through excise tax. It also makes the production of local alcohol beverages uncompetitive, making it easier to import from other countries, especially those in the EAC,” KAM notes.
This will result in a substantial increase in advertising costs.
Treasury also wants an excise duty of 30 per cent imposed on imported furniture excluding furniture originating from EAC that meet the EAC Rules of Origin.
Furniture manufacturers prefer that protection contemplated under the excise proposal be granted under the EAC Common External Tarrif instead of the excise duty act.
Inputs and raw materials supplied to pharmaceutical manufacturers, agricultural pest control products and transportation of sugar cane from firm to milling factories have been moved from zero rate to VAT exempt, meaning manufacturers will not be able to claim back Value Added Tax.
The National Treasury and Economic Planning Cabinet Secretary Njuguna Ndungú has also proposed Import Declaration Fee (IDF) on imported raw materials and intermediate products, be increased from 1.5 per cent to 2.5 for most of the products, which is not charged by neighbouring countries.
He also wants an imposition of 10 per cent levy on the customs value on cement clinkers as part of the export and investment promotion levy.
According to KAM, a grace period of four years should be considered before any duty, tax or levy is introduced to allow for clinkering capacity expansion.
The purpose of the export and investment promotion levy according to the government is to provide funds to boost manufacturing, increase exports and create jobs.
However, the levy is an additional tax to the already existing numerous taxes, KAM which yesterday made presentations to the Molo MP Francis Kuria chaired Finance and National Planning Committee argues.
“ The overall taxation burden in Kenya is increasing by the day affecting Kenya’s competitiveness for investment and tying up revenue for existing business to enhance their production and output,” CEO Antony Mwangi said.
The steel sector will also be hit by a 10 per cent levy on iron finished products, bars, and rods if the Finance bill is passed. Paper industry will also pay the same levy.
The government is keen to increase revenue collections to cut the fiscal deficit which has seen the country continue to borrow heavily, on the back of low revenues that are going into debt repayment.
Making the cost of production expensive, however, manufacturers say will expose the market to cheaper imports mainly counterfeits.
Illicit trade is estimated to cost the country about Sh153 billion annually in potential revenue alone.
“Our lawmakers must be forced to acknowledge that their actions have had inadvertent consequences –fuelling this criminality, through the current unpredictable fiscal policy that is driving increasing numbers of consumers to the shadow economy,” the Retail Trade Association of Kenya (Retrak) CEO Wambui Mbarire noted.
The Consumer Federation of Kenya has also been vocal against increasing taxes that affect commodity prices, and instead calling for the widening of the tax bracket to include the informal sector among other areas.