President William Ruto has promised manufacturers a predictable tax regime as part of his government’s plan to attract investment.
Speaking at a manufacturer’s summit in Nairobi, Dr Ruto said the intention is to create a conducive operating environment so manufacturing can create more jobs and increase its contribution to the country’s GDP.
Manufacturers have decried uncertainties in Kenya’s tax regime, including frequent changes to the excise duty and VAT, many county levies and unharmonised export taxes that have made it a headache to comply and plan.
“I agree with you that investments in manufacturing are long-term which require a predictable tax regime. We will make our tax regime predictable,” he told members of the Kenya Association of Manufacturers (KAM) Wednesday.
The manufacturers noted that sudden fiscal and taxation policy changes harm businesses and become a stumbling block to business continuity.
Predictability of the tax regime on the other hand allows investors to make projections on long-term investment while reliability gives them confidence in the stability of economic policy.
Manufacturing contribution to the GDP has declined over the past six years to stand at 7.2 percent in 2021, down from 7.9 percent in 2019.
The sector contributed 8.4 percent of the GDP in 2018, at 8.7 percent in 2017 and at 9.3 percent in 2016.
The sector’s contribution has averaged 11 percent in the past decade, signalling a general stagnation.
Mr Ruto also challenged manufacturers to give priority to value addition to boost revenues, create more jobs and grow the economy.
“There is absolutely no reason we are selling 95 percent of our tea unprocessed in a space where we have the biggest competitive advantage,” he said.
He noted that Kenya has an opportunity to grow revenues from tea export, leather and milk processing through value addition.
Currently, manufacturing contributes about 17.30 percent of total tax revenue with manufacturers saying income can be tripled if 20 percent GDP contribution is achieved by 2030.
The Covid pandemic hit hard the manufacturing sector when global supply chains were disrupted following complete and partial lockdowns effected to combat spread of the virus.
The downturn in economic activity and the overall slowdown in production caused job losses, and a slump in revenues even as consumers grappled with reduced disposable income.
President Ruto said the Kenya Kwanza administration will give priority to credit access for manufacturers so that business can have enough working capital to expand and create jobs
“I am persuaded that it is possible for manufacturing to create a million jobs and contribute 20 percent to the country’s GDP by the year 2030,” he said.
Currently, manufacturing employs 338,000 people.
The KAM used the Summit to unveil the Kenya Manufacturing 20 by 30 initiative seeking to maximise opportunities available in the sector to spur its contribution to the GDP to 20 percent come 2030.
KAM chairman Rajan Shah noted that the vision will be realised through global competitiveness, export-led growth, industrialisation of agriculture and SME development.
“We shall also increase employee compensation in manufacturing from Sh232 billion to Sh644 billion and increase real value-added growth from Sh876 billion to Sh5.2 trillion,” said Mr Shah.
The high cost of production and inputs, however, remains a thorn in the side of Kenyan manufacturing firms, compelling them to lay off workers even as other business conditions continue to improve.
It is estimated that out of 19 million people in the Kenya workforce, only about three million people or 15 percent are employed in formal jobs — in both public and private sectors.
The other 16 million or 85 percent work in micro, small and medium enterprises (MSMEs).