Kenyan firms in the export business are facing new pricing pressure as their products continued to lose a competitive edge over increasing costs of production.
The latest pain point for exporters is the new inflation adjustment tax imposed this month by the Kenya Revenue Authority (KRA).
A schedule released by the taxman shows that exporters will pay Sh22,323 ($186.03) per tonne of iron ore and other mineral concentrates from Sh21,000 ($175) while the inflation tax on skins, tails, paws and other animal parts increased to Sh66 ($0.55) per kilo from Sh62 ($0.52).
The new rates that took effect from October 1 are in line with the law that requires the KRA to review inflation tax in tandem with the cost of living measure or the average rate of inflation in the 12 months through June.
The higher rates present the latest pain on businesses that are grappling with increased costs of operations due to a spike in fuel costs and disruptions that have increased the cost of raw materials.
“The Commissioner-General adjusts for inflation the specific rates of export levy set out in the Schedule hereto in accordance with the formula specified in Part (III) of the First Schedule to the Act with effect from the 1st October 2022,” KRA Commissioner General Githii Mburu says in a notice.
KRA increased the export rates on the products to mirror the average annual inflation rate for the year ended June that stood at 6.3 percent.
The new export levy rates look set to make Kenyan exports less competitive in the global markets given that traders will increase prices of their commodities to absorb the higher costs.
This will hurt the appeal of Kenyan products in markets in case countries that compete with Kenya for the same export markets opt not to increase the export levy rates, ultimately winning the pricing war.
A survey by the Kenya Association of Manufacturers (KAM) shows that the local costs of production are higher than the continental average.
The survey dubbed Implications of the African Continental Free Trade Area on Kenya’s manufactured products and put the global competitiveness of Kenyan products at about 55 percent, while it ranges between 35 to 60 percent in Africa.
KAM says the unfriendly regulatory environment, bureaucracy and high cost of inputs present the biggest threat to the competitiveness of Kenyan exports.
Local businesses are also grappling with an eroded consumer spending power that continues to hurt their revenue prospects.
Businesses are grappling with increasing costs of operations in the wake of a global spike in fuel prices for nearly a year. A litre of super is retailing at a record high of Sh179.30 and Sh165 per litre of diesel in Nairobi and the high pump prices have increased the cost of doing business.
Kenya’s economy uses diesel for transportation, power generation and running of agricultural machinery such as tractors, with a direct impact on the cost of farm produce.
Producers of services such as electricity and manufactured goods also factor in the higher cost of petroleum.
The private sector had opposed this year’s annual inflation adjustment, saying it would lead to job losses, cut spending powers of consumers at the back of a spike in cost of fuel and products made from imported raw materials.
The KRA has also increased inflation tax on at least 30 excisable goods effective October 1, setting the stage for higher costs of inputs.
KRA is targeting to raise Sh2.07 trillion in tax collections in the current year ending June next year.