Manufacturers denounce unpredictable tax regime

Herald Aloo

Manufacturers want the government to create a more predictable regulatory environment to ease investment and operations in the sector even as Kenya Revenue Authority (KRA) tightens its grip, riding on its 30.8 per cent revenue improvement.

Kenya Association of Manufacturers (KAM) chief executive Phyllis Wakiaga said complex and bulky tax structures are becoming a huge burden on manufacturing, a key pillar of the “Big Four” agenda estimated to be 49 per cent off the target.

“An assessment of the legal and regulatory environment shows that despite efforts to increase reforms, manufacturers are still faced with an extremely complex regulatory framework that is difficult to understand and comply with,” she said during the manufacturing manifesto 2022-2027 launch.

Maryann Musangi, KAM board director said the manifesto highlights key areas, which if looked into, shall drive prosperity and empower citizens economically.

These include raising the export intensity of manufacturing, reducing the regulatory burden, raising investment for industry and providing public goods for manufacturing.

It also seeks to drive counties’ industrial competitiveness, effective and pro-industry taxation structure and fully implementing existing manufacturing-centric policies.

The manifesto launch comes at a time when most business are crying foul over multiple taxes, fees and levies at both the national level and county levels in the wake of government’s effort to narrow the budget gap which currently stands at 8.7 per cent of the gross domestic product (GDP). 

This has immensely discouraged direct investment by both local and foreign investors. In 2020 Kenya attracted capital investment worth $500 million compared to its counterparts like Nigeria and South Africa which recorded investment inflow worth $45.1 billion and $41.3 billion, respectively, according to World Bank data.

Capital investment

However, as the capital investment declined KRA surpassed its 2020 tax collection projection of Sh1.2 trillion, further illuminating the tax burden shouldered by the few investors in the country. The upcoming elections and policy bottlenecks is even promising more uncertainty to the business community.

In the 2020 regulation, Kenya introduced levy of between 10 per cent to 25 per cent on raw materials and intermediate goods brought for processing into final goods, thus burdening consumers and threatening export competitiveness of Kenya’s manufacturers.

This was in addition to the excise tax on financial transactions which the association has termed “contrary to economic literature.”

As the association pushes for reduction of regulatory burden by 50 per cent over the 5-year period, it is calling for favorable tax structure with clear policy objectives, stable tax code, and scrapping of multiple taxes to foster dynamic economies of scale as the country reels from the effects Covid-19.

The country’s tax code changes annually through the Finance Bill approval by parliamentary, accompanied by erratic changes demanding compliance.

To support predictability, KAM has proposed amendment of the Miscellaneous Fees and Levies Act, 2016 to bar national government agencies from imposing levy or fee/charge unless provided by the Act.