Households are still staring at a higher cost of living despite the government reversing some tax proposals in the Finance Bill that is before Parliament. protests.
This is after proposals by manufacturers were partly ignored with only a few changes adopted in the Finance Bill 2024, that the government plans to use to fund the 2024-25 Sh3.9 trillion budget.
The Kenya Kwanza Parliamentary Group, which met at State House Nairobi on Tuesday, saw the leadership agree to reverse an earlier proposed 16 per cent VAT on normal bread, as part of measures to try and quell growing public protest.
Led by Molo MP Kimani Kuria, the Finance and National Planning Committee also decided to remove VAT on sugar transportation, VAT on financial services and foreign exchange transactions and restrained from increasing mobile money transfer charges.
The 2.5 per cent proposed Motor Vehicle Tax and excise duty on vegetable oil have also been removed.
Excise duty for alcoholic beverages will be calculated based on alcohol content rather than volume, which is a relief for manufacturers, as the earlier proposal would have increased prices, hitting hard consumers.
“We are going to end up with a product in Parliament that came from the Executive and has been interrogated by the Legislature. Through public participation, the people of Kenya have had a say,” President William Ruto said.
Consumers are however facing high prices on imported goods as the government retained the proposed Eco Levy on imported finished products, with Kenya being a net importer.
While exempting locally manufactured products from the levy will help boost Kenya's manufacturing capacity, create jobs, and eliminate the pressure on foreign exchange, the country does not produce enough to meet the local demand, hence huge imports of basic goods and fast-moving consumer goods, mainly from China.
Imported sanitary towels, diapers, phones, computers, tyres and motorcycles, will attract the Eco Levy. The levy will also lead to a price increase on all plastic packaging materials, batteries, and hygiene products.
For instance, the impact of the proposal will increase the packaging costs by 100 per cent in cases where the cost of the raw material is equal to the proposed levy.
For example, a bar soap will increase from Sh170 to approximately Sh270.
“Eco Levy will not only duplicate the existing levy mandated under Extended Producer Responsibility Schemes, but it will also further reverse Kenya’s initiatives to create a circular economy,” Kenya Association of Manufacturers CEO, Anthony Mwangi, said.
Cooking oil prices are also set to increase based on packaging material as a result of the Eco Levy, despite the government removing duty on vegetable oil, in a give-and-take.
The Finance Bill has also imposed excise duty on imported table eggs, onions and potatoes to protect local farmers.
According to Kenya’s Agriculture and Food Authority, the country produces a paltry 26 per cent of the onions consumed in the market, with 74 per cent imported mainly from Tanzania.
The little that is locally produced is also of low quality according to the authority, amid post-harvest losses, poor management and storage, low quality seeds and onion diseases.
About 50 per cent of potatoes in the processing sector are also imported.
The proposal to increase the Import Declaration Fund (IDF) from 2.5 per cent to three per cent, road maintenance levy from Sh18 to Sh25 per litre, and an increase in the railway development levy, are expected to have an impact on goods.
Higher fuel prices will impact transport and production costs in the agricultural sector, among others.
Under the Excise Duty Act, the government has proposed to remove the provision allowing manufacturers to offset the costs of their raw materials subject to excise. The offset mechanism is meant to encourage local value addition.
In addition, the proposal to introduce a 10 per cent excise duty on plastic products will increase the cost of plastic products like basins, mugs among others.
For instance, the cost of a basin will increase from Sh110 to about Sh200 due to this proposal combined with other levies such as eco levy, according to KAM.
The Bill further proposes to impose an Export Investment Promotion Levy (EIPL) on raw materials used for manufacturing value addition.
“This levy shall be detrimental to the competitiveness of local industries in both local and export markets through the increased cost of production,” KAM has warned.
In 2023, the levy was imposed on industrial raw materials such as kraft paper, steel billets, and cement clinkers, to support local manufacturing. The move saw the cost of construction go up by at least 40 per cent.
Kuria said the Finance Bill aims to generate an additional Sh302 billion in revenue, which is intended to bolster the projected total revenues for the year to Sh3.3 trillion.