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Kenya’s struggling manufacturing sector will be hit hard by new tax policies as experts warn the government of the ripple effect the action would have on the economy.

In a new raft of tax changes, the manufacturers of glass have significantly been impacted following the introduction of a 35 per cent excise duty or Sh200 per kilogramme of imported float glass.

This will result in the relevant suppliers and manufacturers incurring more on the imports thereby disrupting their production processes.

Float glass is a raw material for production of glass used in windows, doors and facades. Toughened and laminated glass which is from the product is critical for construction sites.

A Kenya Association of Manufacturers (KAM) team had warned during the public participation on the tax amendment bills at the Kenyatta International Convention Centre (KICC) in November last year that the 35 per cent of the custom value would increase the cost of related products by 95 per cent.

“The average cost per square metre for the float glass’ raw material is Sh1,454 per metre squared. When you increase it by 35 per cent or Sh200 per kilogramme, you end up with a higher figure per square metre,” it argued.

Additionally, although coming as slight relief, ceramics suppliers have also been hit following the introduction of five per cent of custom value or Sh200 per square metre on imported ceramic flags and paving, hearth or wall tiles; unglazed ceramic cubes and the like.

This according to a consortium of 20 companies from the ceramics who took part in the aforementioned public participation through their spokesperson, David Ng’ang’a, Business Development Manager (EA) at O Trade & Logistics, will significantly impact the prices and that consumers will not be able to afford the products.

They proposed that the initially stated 35 per cent tax be scrapped as this would force them out of business. “The reality on the ground after we did our costs, those introductions will render our businesses null and void. There’s no single developer or Kenyan who will be able to afford these products,” Ng’ang’a said.  

Now, the five per cent tax, will mean an additional cost of Sh125 on the products hence impacting the construction sector.

As much as this will help locally manufactured products under this category to be competitive, the quality of the imported ones will still be higher due to advanced designs, according to Robert Waruiru who was representing Ichiban Tax and Business Advisory.

“The quality tiles and sanitary wares in our hotels are high and provide a state-of-the-art feeling when you enter any of the hotels in the country. These products are indeed imported because our local manufacturers cannot produce the same,” he said.

At the same time, the manufacturers of coal related products such as cement, carbon fibres and foams, medicines, tars, synthetic petroleum-based fuels, and home and commercial heating, have also been impacted following the introduction of 2.5 per cent excise duty on coal.

According to KAM, the tax will impact the cost of the related products thereby reducing the uptake.

Alcoholic manufactures too will also have to rethink their strategies as Sh22.50 per centilitre of pure alcohol (products with alcohol content not exceeding six per cent) and Sh10 per centilitre on alcoholic strength exceeding six per cent on products. 

Also, the cost of branding, and printing will also hike, as a result of the new 15 per cent tax on the imported product from non-East African Community member countries.

This will again impact the suppliers and manufactures under the category due the high imports cost coupled with other factors such as transport costs.

The increase in tax on float glass, coal and ceramics among other products associated with construction materials will affect the prices of finished products. As a result, the purchasing power of consumers and their disposable income will also reduce due to limited finances.

 Generally, according to KAM director Bharat Shah, the construction industry will experience a slow progress due to the high prices of the building materials fronted by the new taxes.

“The conversations we’ve had with the President in terms of supporting affordable housing and sourcing local inputs from the manufacturer will be affected in the sense that we are building affordable housing with unaffordable inputs.  That’s the reality,” Shah said during the public participation. 

Basically, the new tax obligations to manufacturers will stifle the growth of the sector as majority of them will be focusing on the management of their different products in a bid to make their businesses remain relevant.

The sector, according to Kenya National Bureau of Statistics, contributed 7.6 per cent to the gross domestic roduct in 2023 while also providing over 360,000 jobs in the country. It also contributes 18 per cent to the country’s taxes according to KAM.