Columnists

Heed the tax cries of manufacturers

times-tower
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Summary

  • Resorting to court is a sign of deteriorating relations between the government and a sector that still counts as the largest contributor of national income.
  • With manufacturing still reeling from the effects of the coronavirus pandemic, the need of the hour right now is co-operation, mutual respect and confidence between the government and business.
  • It is a pity indeed that the two have been forced to confront one another in courts rather than confront the problems facing the country together.

I have it on authority that the manufacturers’ lobby — the Kenya Association of Manufacturers (KAM) — has now decided to go to the courts to challenge the controversial minimum tax.

Resorting to court is a sign of deteriorating relations between the government and a sector that still counts as the largest contributor of national income.

With manufacturing still reeling from the effects of the coronavirus pandemic, the need of the hour right now is co-operation, mutual respect and confidence between the government and business.

It is a pity indeed that the two have been forced to confront one another in courts rather than confront the problems facing the country together.

In the past, entities such as the Joint Industrial and Commercial Committee would facilitate dialogue between business and the government. Resorting to courts was very uncommon.

Clearly, co-operation and mutual respect between the government and business are no longer a high priority in this country.

In Tanzania, the minimum tax only applies to companies that have been in a loss position for three consecutive years. In Nigeria, effective January, 20220, companies that have been in business for less than four calendar years are exempted from the minimum tax.

The manner in which the tax has been introduced here is a poignant illustration of arrogance of power by the tax policymaking elite at the Treasury.

Indeed, arrogance and bureaucratic hubris is why amendments to the tax code can be introduced without considering public suggestions even when independent experts and the press are warning that the proposed tax changes point to manifest disaster.

Under the prevailing mindset, the views and representations of key taxpaying groups such as the manufacturers’ lobby are summarily dismissed as ranting by vested interests.

Here is a bit of background about the controversial tax. First, this tax will be levied at one percent on gross turnover of a company where the minimum tax is higher than instalment tax under the existing regime.

Secondly, the main justification for its introduction is that it makes companies making losses to pay a fair share of corporate taxes in spite of the losses they make. Thirdly, the government says that it wants to prevent companies from taking undue advantage of tax laws to reduce their corporate tax liabilities.

Fourthly the government wants to deal with perceived inequities in the taxa system.

Yet in reality, what the government is doing amounts to prescribing amnesia to the manufacturing sector. In the first place, this tax is coming in the context of deteriorating macro-economic conditions characterised by a stagnant uptake of private sector credit, declining profitability of companies as evident in an upsurge of profit warnings by listed firms, stagnant consumption of power by industrial users and stagnant growth.

Indeed, this is a sector that continues to operate in a very difficult climate characterised by high energy costs, high prices of imported raw materials, fast depreciation of the shilling, and a Mombasa port whose efficiency has badly deteriorated in recent times.

The minimum tax is being introduced at a time when the government’s chief priority should be how to tackle the high cost of doing business and how to improve the investment climate for manufacturing.

I have said it in these columns before and will repeat it here. One of the big problems in this country is instability of the fiscal regime. We introduce amendments in the tax law unpredictably without regard to the implications on future plans by the private sector.

The tax has been written without regard to the incredible damage that it is bound to inflict on the manufacturing sector. It stems from the attitude and mindset that the state has the first claim to everyone’s income and that what the taxpayer is left with after tax is a gift by the state to the undeserving citizen.