The Finance Bill 2024 will directly affect manufacturers and further dampen their GDP contribution, the Kenya Association of Manufacturers has said.
Speaking on Wednesday at a press brief on implications of the Bill, KAM chief executive Antony Mwangi said the proposed taxes will cut the sector’s contribution from the 7.6 per cent last year to lows of six, and even further in the long run.
This is despite the sector’s vision to grow its contribution to 20 per cent by 2030, create one million jobs and enhance value added output from the current $8.5 billion (Sh1.1 trillion) to $50 billion (Sh6.6 trillion) within the same time period.
“First, the country needs to evaluate the impact of the Finance Act 2023 before coming up with further taxes. Currently we cannot account for any good impact of that Act,"Mwangi said.
“The 2024 Bill is an additional burden and hit to the sector as there is no single provision in the Bill that actually tells the country is looking to increase production or manufacturing.”
The industry's contribution to the GDP has been declining, from 9.3 per cent in 2016 to 7.2 per cent in 2021, according to the Kenya National Bureau of Statistic (KNBS).
Last year, the sector grew by 2.0 per cent compared to a growth of 2.6 per cent in 2022.
Additionally, the volume of output grew by 2.8 per cent in 2023 compared to a growth of 3.7 per cent the previous year, with the association attributing the trend to the harsh business environment coupled with unpredictable tax reviews
Subsequently, Mwangi said no member of the association has opted for new investments in the country so far this year, but instead are looking into Tanzania and Uganda markets and further into the DRC.
“Comparatively if you compare the number of Foreign Direct Investments (FDIs) between Kenya and Tanzania for instance, what Tanzania attracts in a quarter is more than what Kenya attracts in a whole year,” Mwangi said.
Some of the tax proposals highlighted by the association that could hurt the sector include the proposed increase of the Import Declaration Fee (IDF) on inputs for manufacturing from 2.5 to 3.0 per cent.
IDFs on all other imports are also set to be increased from 2.5 to 3.0 per cent.
KAM further flags introduction of the new environment tax, the eco levy, with the aim of setting up waste management infrastructure, financing Kenya’s sustainable waste management programme, and setting up material recovery facilities and electronics waste collection centres across 47 counties.
This, it said, will duplicate the existing mandatory levy under the Extended Producer Responsibility (EPRs) schemes.
"This will also reverse Kenya’s initiatives to create a circular economy to manage its waste and become a regional recycling hub through the proposed removal of the incentive to increase investments in recycling of waste products," said KAM.
It said the Eco Levy would be a hurt consumer, as it will increase prices for all plastic packaging materials, batteries and hygiene products.
"For instance, the Sh150 levy per kilogram of plastic packaging will increase the cost of a 400 grams loaf of bread by Sh9 from Sh65 to Sh74; increase 1 litre of cooking oil by Sh16.81 from Sh300 to Sh316.81; increase 1 kilogram of power detergent by Sh30 from Sh200 to Sh230 notwithstanding other duties proposed by the Bill on the same products."
Further, the Bill proposes the introduction of a 25 per cent Excise Duty on Crude Palm Oil, a 25 per cent Excise Duty on finished product, 10 per cent excise on plastic packaging and the Eco Levy on plastics packaging at Sh150 per kg, all hitting the cooking oil segment.
“These taxes if effected, could see the ex-factory price of a 20 litre cooking oil rise by 56 per cent from the current Sh3,693 to Sh5,775,” KAM said.
“The shop price for a litre would then move from Sh300 to about Sh468.”
KAM also raised concern over the alcohol tax proposals which plans to introduce an Excise duty at Sh16 per centilitre of pure alcohol on spirits; export and investment promotion levy (EIPL) at three per cent on Rum and Vodka, and delete section 14 of the Excise Duty Act which provides relief for raw materials.
It said the taxes would see the final price of a 250ml of spirit with 40 per cent alcohol content increase to about Sh662 from the current 290.
“This eventually will drive more people into illicit consumption when prices in the market shoot up as a result of manufactures passing on the burden to consumers,” KAM said.