Investors in Kenya are finding it increasingly difficult to conceal their dissatisfaction with the current state of business in the country.
The guilty-until-proven-innocent modus operandi of government agencies responsible for enforcing tax and regulatory compliance in the private sector is largely to blame for this predicament.
A recent case in point is the dramatic arrest of directors of Keroche Breweries over a Sh14 billion tax evasion allegation.
Another example is the recent onslaught on the gaming industry, where licences were withdrawn and punitive taxes arbitrarily introduced.
Predictably, the crackdown on gaming was framed as a moral crusade against gambling addiction, despite the fact that only 1.9 percent of Kenyan adults participate in sports betting, according to the Finacess 2019 Survey.
The effects of this unwarranted aggression towards key local investors go far beyond the affected companies and carry negative implications for the government as well.
Large businesses exist in complex ecosystems comprised of multiple value chains. When a beer manufacturer, for example, encounters operational challenges due to a hostile legal and regulatory environment, sorghum and barley farmers, as well as the companies that provide farm inputs and extension services, also suffer.
In other words, when a big business that is deeply embedded in the local economy sneezes, other smaller players in its extended value chain catch a cold. This not only puts thousands of jobs in multiple sectors at risk, but also substantially erodes the tax base, limiting the government’s ability to collect sufficient revenue.
The hostile stance that some government agencies have taken towards local businesses, therefore, does not serve in the interest of the government, the business community or the wider economy.
For the record, the business community fully supports the government’s push to tighten regulatory and tax compliance.
Everyone should pay their fair share of tax and comply with laws aimed at promoting public good. However, the methods of enforcing compliance need to change.
The government needs to work more closely with businesses to broaden the space for dialogue and alternative dispute resolution. It is instructive to note that tax disputes are not uncommon in business – even some of the world’s most reputable Fortune 500 companies regularly face them.
Global best practice is to handle such disputes through open and constructive dialogue. Business membership organisations such as Chambers of Commerce typically have dispute resolution mechanisms to facilitate this process. The judicial system should only be used as a last resort.
Government stands to gain more in terms of taxes and job creation from businesses that spend their time innovating and improving the customer experience rather than navigating regulatory and legal minefields.
A bad precedent is also set when government agencies exceed their mandate and interfere with the constitutionally guaranteed independence of businesses.
Kenya has come a long way in positioning itself as a leading business hub in Africa. The country has steadily risen up the ranks in the World Bank’s Ease of Doing Business Index, coming in at position 61 out of 190 economies in 2018, compared with position 80 in 2017, position 92 in 2016 and position 113 in 2015.
To consolidate these gains, the government needs to improve the operating environment for local investors. If the challenges affecting local investors are not urgently addressed, it will ultimately have implications for foreign direct investment as well.
When investing in frontier and emerging markets like Kenya, foreign investors generally prefer joint ventures with local companies and investors who understand the local market dynamics. Local investors are, therefore, a critical partner in the government’s strategy of attracting global investors to Kenya.
It is time to reset relations between the local business community and the government. The current war on local investors will have no winners at a time there is broad consensus that the economy needs to grow much faster.
Kiprono Kittony,Business leader and vice-chairman of the World Chambers Federation.