Economy

KAM wants higher taxes on imports

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KAM chief executive Phyllis Wakiaga. FILE PHOTO | NMG

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Summary

  • Manufacturers in Kenya have stepped up the push to increase taxes on finished products imported into the East African Community (EAC) bloc, citing unfair competition for locally manufactured goods.
  • The industrialists’ lobby, the Kenya Association of Manufacturers (KMA), said Kenya’s decision to apply a 30 per cent Common External Tariff (CET) on imported finished products distorted the regional market.
  • The CET means that the same tariff is generally charged whenever a member imports goods from outside the customs union.

Manufacturers in Kenya have stepped up the push to increase taxes on finished products imported into the East African Community (EAC) bloc, citing unfair competition for locally manufactured goods.

The industrialists’ lobby, the Kenya Association of Manufacturers (KMA), said Kenya’s decision to apply a 30 per cent Common External Tariff (CET) on imported finished products distorted the regional market because other partners of the EAC Customs Union such as Tanzania and Uganda had settled for a higher rate of 35 per cent.

The CET means that the same tariff is generally charged whenever a member imports goods from outside the customs union.

A lower CET on finished products comparative to Tanzania and Uganda, therefore, means that such products are likely to be dumped in the Kenyan market despite its sufficient manufacturing capacity for items such as iron and steel products, wood products, textile products, paper and paperboard products and vegetable oil, among others.

“If intermediate raw materials like fabric is charged 25 per cent and the finished clothes are charged 30 per cent as Kenya proposes, then it will be more attractive to bring in the clothes instead and that essentially means we will be exporting jobs, dragging our industrialisation dream and killing local manufacturing,” said KAM chief executive Phyllis Wakiaga.

The manufacturers last month wrote to the Trade and Industrialisation ministry and the Treasury to review the CET, warning that the distortion was hurting Kenya’s industrial performance.

“KAM holds that Kenya should adopt 35 per cent as the fourth tariff band to support the industrialisation agenda by allowing a sizable margin to incentivise value addition and to correct the anomaly in the current CET, where inputs attract the same rate as the finished product.

“This is bearing in mind that over 80 per cent of inputs are imported in raw or intermediate form. A rate below 35 per cent will not correct this position, considering the region has agreed on the other three tariff rates of 0, 10 and 25 per cent,” KAM wrote in the letter to the Trade ministry.

The Common External Tariff applicable by EAC partners is set for review every five years, although that has not happened since 2013.

The current CET structure is based on three bands which set a zero percent tariff on raw materials and capital goods, 10percent on intermediate products and 25 percent on finished products.

KAM however said the three bands had failed to offer value to its members hence the need for a fourth one which would ensure differentiation between unprocessed or raw materials, intermediate products manufactured locally, intermediate products not manufactured locally, and justifiable rates for finished products.

Critics argued that this CET structure does not consider the nature of manufacturing where in some instances a finished product is a raw material for another manufacturing process adding that it also acts as a disincentive to regional trade for goods manufactured in the EAC as they attract higher tariffs than goods that are manufactured outside the region.

Despite Kenya’s remarkable manufacturing capacity, the EAC Council of minister has over the years largely allowed the country to apply an import duty rate higher than the CET rate on several products in a bid to protect local manufacturers of these products from competition from cheap imports.

Tariff protection is increasingly becoming a preferred policy response by countries experiencing import surges from countries known to adopt unfair trade practices such as export rebates. In 2019, US imposed a 15 percent tariff on some selected imports from China to protect domestic manufacturers and jobs.