Economy

Rotich taxes seen choking struggling timber industry

lorry

A lorry ferries timber. FILE PHOTO | NMG

Manufacturers have protested increased taxes slapped on timber, paper and paperboard, saying the measures may slow down growth of the struggling sector and hurt its ambition of generating 800,000 jobs in four years.

They see the proposed rise in duty on timber imports to 35 per cent from the present 25 per cent as an incentive to traders to ship in ready-made furniture because it makes the material more expensive.

A similar jump in duty on paper and paperboard, they argue, will increase packaging costs by seven per cent, a difference which will be passed on to consumers.

The Kenya Association of Manufacturers (KAM), the sector’s lobby, said Treasury secretary Henry Rotich disregarded their proposals to retain the tax on timber imports at 25 per cent and cut that on paper and paperboard to 10 per cent.

“An increase of duty rate to 35 per cent for intermediate inputs will completely distort the value chain,” the lobby says in their protest report.

KAM held showdown talks with Mr Rotich on July 9, a meeting described as “good progress” by manufacturers who attended.

The rise in tax on timber will motivate traders to ship in more finished furniture from East Asian countries, a trade that was growing at a compounded rate of 22 per cent every year, KAM said, quoting own sector statistics.

That will further hurt domestic furniture makers whose business, they said, was growing at a lowly seven per cent annually. “This (timber duty) increase is also going to encourage furniture manufacturers to outsource their production off shore,” KAM said in a presentation during the meeting at the Treasury head office.

“In all likelihood this policy will increase the volume of imported furniture and decrease the portion of local value addition.”

The struggling sector was initially thought to have been one of the biggest winners in the June 14 Budget Statement by Treasury secretary Henry Rotich, but some industry chiefs are now up in arms saying the budget has given and taken away in equal measure.

Mr Rotich said in the Budget Statement on June 14 increased taxation was aimed at cushioning domestic factories from cheaper imports of paper and paperboard and timber.