The cost of imported goods looks set to rise after State House reached a deal with industrialists to increase import levies and reduce duty on raw material shipped in to support local manufacturing.
President Uhuru Kenyatta has approved a long-standing proposal by manufacturers to exempt raw materials and machinery from the Import Declaration Fee (IDF) and Railway Development Levy (RDL) which are currently at 2.5 per cent and 1.5 per cent of imported goods respectively.
Treasury secretary Henry Rotich is expected to report the new rates to State House tomorrow (Friday) to be included in the Finance Bill — which contains proposals for new taxes to fund government operations for the year starting July. “CS Treasury to undertake analysis and review of IDL and RDL on finished goods so their removal on industrial inputs and machinery is revenue neutral,” the president’s meeting with the Kenya Private Sector Alliance (Kepsa) resolved. “NT (National Treasury) to report on the new rates on finished imports to be included in the Finance Bill and report by Friday, 18, May.”
The Kenya Association of Manufacturers (KAM) has proposed that the IDF on finished goods be increased to 3.5 per cent from the present 2.5 per cent, while RDL, introduced in 2013 to support heavy investment in the railway network, be doubled to three per cent.
The move sets the stage for commodity price increases including fuel, food, cars and second-hand clothes, with the potential effect of eroding the purchasing power of households.
Increased levies will hit consumers because Kenya is a net importer and relies on foreign supplies, majority of which are bought as ready-made products. Kenya’s imports stood at Sh1.725 trillion last year compared to exports of Sh530 billion.
The two levies — Import Declaration Fee (IDF) and Railway Development Levy (RDL) — generated taxes of about Sh69 billion last year based on imports of Sh1.725 trillion. “The government needs to address competitiveness urgently because when you look at Kenya in terms of global benchmarks, cost levels are at least 10 per cent higher,” KAM vice chair Sachen Gudka said in an interview.
“We need to address that cost imbalance because foreign investments will only flow into countries that have the lowest cost of production.”
The discussion on removal of IDF and RDL on raw materials was earlier disclosed by Industrialisation secretary Adan Mohamed in February.
Kenya is a signatory to the World Trade Organisation’s Trade Facilitation Agreement of 2013, commonly known as Bali Agreement, binding her to reduce barriers which may hinder growth in global trade.