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How North Rift bloc plans to end double taxation in counties

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A trader at Kamariny junction in Iten, Elgeyo Marakwet County on November 25, 2020. NMG PHOTO

Summary

  • Most of the levies imposed by the county governments serve to scare away potential investors due to double taxation and promote corruption owing to lack of transparency in utilisation of the revenues.
  • The most hit are inter-county businesses.
  • Traders are forced to pay taxes in every jurisdiction they take their goods to, raising the cost of doing business.
  • Consequently, most have opted out after finding their ventures unsustainable.

The inception of devolved governance in 2013 was seen as a blessing to many business people, but it has turned to be the straw that breaks many upcoming entrepreneurs metaphorically camel’s back.

Most of the levies imposed by the county governments serve to scare away potential investors due to double taxation and promote corruption owing to lack of transparency in utilisation of the revenues.

The most hit are inter-county businesses. Traders are forced to pay taxes in every jurisdiction they take their goods to, raising the cost of doing business. Consequently, most have opted out after finding their ventures unsustainable.

For instance, in the 2021/22 financial year for Uasin Gishu, traders offloading maize and wheat into the county will have to pay Sh7,000 for a 12-tonne lorry and Sh5,000 for those weighing less than 10 tonnes.

A penalty of Sh20,000 will be imposed for those who flout the regulations in what some traders term as double-taxation and a threat to inter-county trade.

Traders have challenged county governments to do away with some of the cess charges, saying the levies contradict regulations set by World Trade Organisations and most commonwealth countries.

Small businesses involved in micro-finance, building and construction, hotel and hospitality industry among other sectors want the levies harmonised to boost inter-county trade.

slowly killing devolution

“Some of the Finance bills are killing devolution by hurting investment and slowing down development of new Small Medium Enterprises (SMEs) despite contributing to the growth of the local economy,” states Mr Joseph Kandie, who has invested in the carpentry and construction industry.

Mr Kandie who operates in Eldoret, Uasin Gishu but sources raw materials-timber from Elgeyo Marakwet says businesses like his pay a lot in terms of permits and licences to the two devolved units.

“The finance bills have caused unnecessary tussles between the devolved units and other stakeholders which impacts negatively on the local economy. They have triggered fear among most investors who are unwilling to put up businesses at the county level due to fears of heavy taxation. This kills the market sector and to a great extent devolution,” adds Ms Mercy Cheptoo, who runs mobile money shops in Nandi and Uasin Gishu.

Double taxation is not only at the inter-county level. Mr Isaac Lesere Yego is unable to expand his animal feeds business pushed into a tight financial spot by the high tax demands by both the national and county governments.

Ideally, he says, the Kenya Revenue Authority (KRA) should be the single tax collector to avoid double taxation.

“Double taxation hurts investments and slows down development of new SMEs despite contributing to the growth of the local economy. Imagine whenever my vehicles cross over to another county from Uasin Gishu, I have to pay branding fees, which are not regulated from one devolved unit to another,” points out Mr Lesere.

Sustainable revenue resource

He adds that hefty taxes will be the death of many upcoming start-ups hence there is need for tax holidays so as to grow exponentially and employ many people.

“Taxation kills small business, when the venture is still small with no major incomes. We require the government to waive taxes for start-ups or give a tax holiday,” he says.

Among the levies the Kenya National Chamber of Commerce and Industry (KNCCI) wants revised include property taxes and licences for business, catering and land rates which it says encourage double taxation.

KNCCI, Uasin-Gishu County chapter chairperson Willy Kenei adds that the lobby plans to roll out a credit facility and training project to empower emerging entrepreneurs to acquire additional business skills to penetrate the global market.

'The programme involves development of an SME model suitable for a special economic zone for each county to attain a sustainable revenue resource base,” explains Mr Kenei adding that the plan involves reorganising the SME sector and provision of land to set up new industries to create more employment opportunities and propel economic growth at the county level.

The programme forms part of Vision 2030 and requires total overhaul of SMEs and enriched industrial development to transfer power to the economy, notes Mr Kenei.

Create conducive environment

He has petitioned counties that are members of the North Rift Economic Bloc (Noreb) to harmonise trade laws to create a conducive business environment and work together to promote growth and development of SMEs to benefit more than 10 million residents in terms of creation of more job opportunities and increased revenue generation.

The bloc that brings together Uasin Gishu, Samburu, Baringo, Turkana, Nandi, West Pokot, Trans-Nzoia and Elgeyo-Marakwet counties, was launched in 2015 but has failed to transform the lives of residents.

However, cross-border trade and investment in the North Rift region is expected to increase once devolved units ratify a bill which will see removal of double taxation among the member counties.

Uasin Gishu Trade Executive Emily Kogos says the county government is alive to the taxation problem and that governors in the region are working on a plan to ease the burden.

According to Noreb Chief Executive Officer Dominic Biwott, the bill once ratified into law will help spur growth and development of SMEs.

He attributes delays in ratification of the bill to the need to involve the legal experts from Kenya Law Reform Commission.

“The region is endowed with untapped potential in terms of mining, agriculture and tourism. We want to revamp the bloc to spur growth to benefit over 10 million residents, especially by setting up more SMEs to help create employment opportunities,' says Mr Biwott.

He adds that they are working on a policy that will see some fees that lead to double taxation abolished.

“Harmonizing tariffs has started and we are looking at a number of applicable fees where some can be eradicated completely while others rationalised subsidising to formalise them in the region. We do not want to make political statements, but we want a legal framework which will be in existence throughout and help our people,” he says.

“Some fees like advertising fee- if you move a branded truck from Turkana to Nandi, you pay such fees in every county you pass until you arrive in Nandi making our people to be pushed out by competitors,” Mr Biwott adds.

Harmonisation of tariffs

To bolster economic growth, businesses registered within the Noreb counties will be spared certain taxes, adds Mr Biwott.

“If we are able to verify that a company has been registered in the Noreb region, it should be able to enjoy some benefits,” he says.

The Kenya Association of Manufacturers (KAM) wants county governments in the region to ratify the bill to facilitate removal of double taxation among the member counties.

“Traders, especially in transport, logistics or agriculture incur extra charges transporting goods from one county to another. Harmonisation of these tariffs will help in boosting intra-trade in the counties,” notes Mr Bryan Cuthbert, KAM chairman, North Rift.

Mr Cuthbert in an interview is of the view that there is need for the government to protect both manufacturers and consumers caught up in the double taxation dilemma.

“If there are a lot of taxes from one devolved unit to another, both the consumer and the local manufacturers suffer, which hinders the growth of our local industry. Both parties need to come up with a mechanism to solve this kind of dilemma or perhaps the current revenue formula before the Senate will be the panacea to all these,” says Mr Cuthbert.

Flagship projects

Noreb counties are keen to tap high profile local and international investors to generate revenue to unlock investments in the region that is a gateway to the East and Central Africa.

Uasin Gishu Governor Jackson Mandago who is also the chairperson of Noreb discloses that consultations are in top gear to ensure that SMEs get a conducive environment for doing their businesses.

“As governors from this region, we are working together to see that when you get your licence and you are moving your goods to another county, you are not charged again, this will do away with double taxation to allow our SMEs to grow,” says Mr Mandago.

He also underscores the importance of the businesses cooperating with the county governments arguing that it is the only way that the two entities can flourish jointly.

regional associations

“As business community, you must strive to apply for licences in advance, this helps us in generating our revenues which allows us to provide better services to our people as well as security for your businesses and this is the kind of cooperation we should nurture,” he shares.

Each county is to single-handedly undertake a flag-ship project and is supported by other counties.

For instance, Nandi County is to putting up a milk processor, Baringo (coffee processor), Elgeyo-Marakwet (sports tourism), Turkana (Tourism), West Pokot (meat processor) while Uasin Gishu (industrial hub) and Trans-Nzoia (maize milling plant).

Apart from the Noreb, the 47 counties have created blocs such as the Lake Region Economic Bloc, the Frontier Counties Development Council, the South East Kenya Economic Bloc, the Jumuiya ya Kaunti za Pwani and the Mt Kenya and Aberdare Economic Bloc.

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