Letters

Kenya’s new taxes threaten economic recovery

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Prices of crude palm oil have jumped by 33 percent due to the Ukrainian crisis. FILE PHOTO | NMG

Countries are recovering from Covid-19 and they recognise that manufacturing and increased value-addition play a key role. They are reworking policies to invigorate their economies after the slump witnessed over the past two years.

Organisation for Economic Co-operation and Development (OECD) projects that South Africa’s economy is expected to rebound by 2.5 percent in 2022, driven by domestic demand and commodity exports, increased household consumption and strengthened private investment.

Locally, the government announced measures to cushion the economy from the effects of Covid-19, some of which were rolled back at the beginning of this year. One outstanding focus area is manufacturing. Unfortunately, the fiscal and regulatory policies developed over the last two years have been contrary to the country’s recovery ambitions.

For instance, beginning early this month, the Kenya Revenue Authority (KRA) has implemented the 4.97 percent inflation adjustment on specific rates of excise duty, for the financial year 2020/21.

With the new rates, it means that excise duty on goods such as alcoholic and non-alcoholic beverages, chocolates and cigarettes shall increase, and consequently, drive up prices.

This is set to exacerbate an already grim situation, as Kenyans struggle to make ends meet. Manufacturers, on the other hand, shall grapple with reduced demand for their products. It shall also create room for illicit trade to thrive, as consumers buy cheaper goods from her regional counterparts whose excise duty is five times less.

In light of this, we call on the government to roll back the implementation of annual inflation adjustment to support the manufacturing sector’s rebound. We also urge the KRA to revise the frequency of the annual inflation adjustment to every two years.

Kenya’s regulatory regime also undermines all efforts towards resilient and sustainable economic growth. This not only discourages industry from scaling up but also drives potential investors to seek more suitable, predictable and secure markets to venture into.

For instance, the implementation of the Crop (Nuts and Oil Crops) Regulations 2020 has introduced new fees and levies as a measure to control 13 scheduled crops.

These crops are sunflower, sesame, coconut, cashew nut, groundnut/peanut, safflower, linseed jojoba, oil seed, flax seed and bambara nuts, among others.

Earlier this year, Covid-19 increased prices of crude palm oil and other intermediate products used in the manufacture of edible oils and bar soaps.

With the implementation of these regulations, the price of essential commodities shall increase further, putting more strain on Kenyans.

An unfortunate outcome of this is that locally manufactured goods shall be beyond the reach of many citizens.

A common outcome of an unfriendly tax regime, and a heavy regulatory burden is a business environment that stifles growth and hinders potential investors in various sectors.

Arduous regulations

It is critical that the government drops these arduous regulations and the unfriendly tax regime, to drive our competitiveness.

These policy decisions have an impact on our aspirations to become an industrialised nation. It is paramount that we have a favourable regulatory environment for sustained economic growth.

Phyllis Wakiaga, CEO of Kenya Association of Manufacturers