Economy

Close shave for beauty industry in tax drop plan

wigs

Tabitha Njoki, a wigs trader in downtown Nairobi on June 15, 2023. PHOTO | LUCY WANJIRU | NMG

Consumers and small businesses in the beauty industry have been handed a reprieve after Parliament dropped a new tax set to dim the glamour of the growing market.

In new measures under the Finance Bill 2023, the government was seeking to introduce a five percent excise duty on human hair, eyelashes, switches, and artificial nails, in a move that would raise the prices of these beauty products whose usage is on the rise.

Critics argued that the tax would reduce the purchasing power of middle-class and low-income consumers who have contributed to the growth of the beauty industry.

Tabitha Njoki, a trader in Nairobi’s downtown area, a throbbing market for human hair, eyelashes, switches, and artificial nails, said dropping the excise tax demonstrates the government’s understanding of the challenges faced by entrepreneurs in the beauty industry.

“It is a relief. However, it is important to understand that our profit margins are not as high as perceived by some. Human hair prices had already gone up with the increase in the dollar rate. The proposed five percent tax would have pushed the prices higher from the minimum Sh25,000 currently, making them unaffordable,” said Martha Wangare, a wig maker at Nairobi’s Dubois Road, who is among the hundreds of traders who stitch bundles of human hair to create a voluminous wig. One bundle of human hair ranges from Sh6,000, and they use up to three or four bundles.

“Had the tax been implemented, we would have been forced to increase the prices of wigs. This would have placed an additional financial burden on our customers, making our products less affordable and potentially reducing demand,” said Ms Wangare.

Read: World Bank: Tax plans to hurt purchasing power

However, Esther Awuor, another wig maker and seller at Nairobi’s Dubois says despite the House Committee’s decision to drop the excise duty, the existing taxes remain high.

“We must keep pushing for policies that support the sustainability and success of small businesses like ours,” she says.

The Budget and Finance Committee of the National Assembly proposed to drop the tax to allow the industry to recover from the post-Covid recession. Wig making and import is now a big business, employing thousands of Kenyans.

“It is worth noting that the hair care industry is the easiest industry for many to get into, hence it absorbs a lot of people into the workforce either directly or indirectly, like salons and beauty shops. Higher taxation makes it impossible for many people to get into the business,” Haco Industries managing director Mary-Ann Musangi said in a past interview with Business Daily.

Anjarwalla & Khanna, and Haki Yetu argued that “taxing beauty products is likely to push many young men and women out of business since the beauty industry has employed many people, who could be pushed out of business if the clients are no longer able to afford their service.”

“The Committee agreed with the proposal to delete clause 43(a) paragraph (vi) to align with the need to keep beauty products for women at an affordable level,” the Committee stated.

The growth of the beauty and haircare market in Kenya has seen imports almost double in 2021 to Sh52.09 million from the previous year, with the sector creating jobs through merchandise and small service providers that have sprouted in major towns.

“Items such as human hair, wigs, false beards, eyebrows and eyelashes and artificial nails which are deemed to be luxurious with inelastic demand have recently grown in popularity in the Kenyan industry,” global audit firm PricewaterhouseCoopers said in an analysis.

“The introduction of these products to the ambit of excise duty will result in a further increase in the cost of acquiring these products given that the cost of excise stamps on cosmetics products has recently increased by 317 percent through the Excise Duty (Excisable Goods Management System) Regulations of 2023.”

The Finance Bill 2023  had targetted additional tax revenues of Sh289.3 billion from beauty products, among other measures. The tax had been set at five percent.

Read: The burden of beauty: Wigs, false beards and eyebrows hit with 5pc tax

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