The contribution of the tiles and ceramics sub-sector to national revenue and job creation in Kenya is substantial and has the potential for greater growth.
This sector accounts for 30,000 direct jobs, and about 200,000 employees are indirectly linked to it. It is also critical to exchequer contributions with official projections showing that the country netted about Sh3.5 billion from customs taxes on imported ceramic and tile products between January and September, 2024 alone.
But in a concerning development that risks wiping out these positives, the Treasury through its newly published Tax Laws Amendment Bill 2024 has proposed a raft of changes to the Excise Duty Act that would directly impact on the cost of ceramic and tile products.
The Bill proposes to introduce excise duty equivalent to 35 percent of customs value or Sh100 per kilogramme(kg) on imported ceramic sinks, washbasins, wash basin pedestals, baths, and bidets, water closet pans, flushing cisterns, urinals and similar sanitary fixtures under the tariff heading 6910.
The Treasury also proposes to introduce excise duty equivalent to 35 percent of customs value or Sh300 per kg on imported ceramic flags and paving hearth or wall tiles, unglazed ceramic mosaic cubes and the likes under the tariff head 6907.
The impact of the proposed excise duty on the cost of tile and ceramic products would be massive and would halt the importation of these items because nobody would be able to afford them anymore.
Computations show that the excise duty proposal on tiles, for instance, would increase their costing by over 500 percent. This means that a tile measuring 600 by 1,200 millimetres that presently costs Sh1,500 per square metre would retail for Sh8,500 per square metre – an amount the market cannot afford.
It is also critical to point out that the Bill has set a proposed minimum excise duty on a 1 by 20-foot container of tiles and at a maximum loading of 27 tonnes which is equivalent to Sh8.1 million.
These protectionist proposals were part of a petition by a local tiles and sanitary ware manufacturing firm that claimed it requires ‘protection’ from imports. The proposals are however inappropriate because local manufacturers do not have the capacity to service demand in the country in terms of volumes, quality, and consumer preference.
Globally, such protectionism is gradually failing to achieve its goals and threatens the future of important industries.
A recent study by the World Bank said that given the extensiveness and depth of global interdependence, naïve trade and investment policies have significant unintended consequences and points out that the goals that drive protectionist measures could be better achieved through increased rather than reduced international openness and cooperation.
The research shows that in many cases, the complex product supply chains that have developed over decades cannot be easily replaced, especially for industries relying on specialised inputs or global networks.
It further points out that the estimates of the costs of decoupling increase after accounting for the risk that some critical industries may be unable to function if the current global trade system were to be overturned.
The study says it is thus crucial to consider not only the potential economic costs but also the risks associated with disrupting critical industries and global supply chains in a deglobalised scenario.
The Treasury should look at the bigger picture and avoid knee-jerk reactions that would only worsen the situation in the wider construction and real estate sector that is currently struggling alongside manufacturing due to high costs.
Data by the Kenya National Bureau of Statistics shows that the construction sector suffered its first contraction in nearly 11 years as output fell by 2.9 percent in the quarter ended June 2024, hurt by high input costs.
The cost of inputs including cement, quarry products, sand, and paints rose sharply over the three months, cutting the demand for the key raw materials and stifling activity in the sector.
We therefore cannot worsen this by raising the cost of tiles and ceramic products which could even go against the government's blueprint on affordable housing for all. For Kenya to remain part of global trade, a 35 percent or $3 minimum duty is enough and fair protection for local tile and ceramic product manufacturers.
The writer is an analyst and comments on topical issues
