Allowing manufacturers to deduct 30 percent of their electricity bills from taxable earnings will certainly boost competitiveness and limit the economic damage caused by inflows of low cost merchandise imports as well as the flight of heavy power consumers to countries will lower power tariffs.
High energy costs have for many years hurt business for industrialists and allowing them to enjoy a corporate tax that is lower than the 30 percent paid by firms in other sectors is a big booster.
The Kenya Association of Manufacturers (KAM) said it had reached an agreement with the State for factories to get a flat 20 percent refund on their power bills and an extra 10 percent rebate based on increased energy use. The Treasury and the Energy ministry said subsidiary legislation on the criteria of measuring a manufacturer’s electricity consumption and output that would determine the rebates will be gazetted in two weeks.
This deal promises to revamp the fortunes of the manufacturing sector, which continues to face numerous challenges despite its high potential for job creation.
A recent analysis by the State-run think-tank, the Kenya Institute for Public Policy Research and Analysis (Kippra), shows that the manufacturing sector has continuously missed its job creation target over the years notwithstanding its potential as a key contributor to the national economy.
The sector for instance created some 700,000 jobs in the four years through 2016 against a projected 1.1 million jobs, the equivalent of a 36.6 percent underperformance.
The sector’s share of the Gross Domestic Product (GDP) has thus steadily dropped from 10.7 percent in 2013, 10.0 percent in 2014, 9.4 percent in 2015 and 9.1 percent in 2016 and 7.9 percent in 2017, data by the Kenya National Bureau of Statistics(KNBS) further shows.
Manufacturers have partly blamed this slump on higher electricity charges compared with countries such as Ethiopia and South Africa as well as multiple levies and fees such as 2.5 percent Import Declaration Fee (IDF), 1.5 percent Railway Development Levy (RDL) and delays in Value Added Tax (VAT) refunds for piling up costs.
A point-by-point redress of these challenges would no doubt breathe life back into factories and restore manufacturing as a key economic contributor. Let the journey start by tackling energy costs.