New Taxes To Negatively Affect Manufacturing – KAM

The Kenya Association of Manufacturers has come out, guns blazing saying the new taxes that have been initiated by the government will affect the manufacturing sector in the country.

“These taxes touch on various key sectors of industry, and are bound to have a negative bearing on Foreign Direct Investment, the size and productivity of local industry,” said KAM in a statement.

According to KAM, the new taxes will hinder the capacity for manufacturing to boost the local economy and achieve 15 percent GDP contribution by 2022 as aspired under the Big 4 Agenda.

The manufacturing body says that at a time when other neighboring countries such as Uganda, Tanzania, and Ethiopia, are attracting critical investment in their manufacturing sector by lowering production and labor costs, Kenya seems to be upscaling, which is contrary to the Big 4 Agenda and to creating sustainable and productive jobs for the citizens of this country.

The general populace is already grappling with the high cost of living, which significantly reduces their purchasing power and threatens to wipe away any savings by households. This means that the consumption of locally produced goods will continue to decline.

The decline will be further exacerbated, when the cost of raw materials, transport, and fuel, used in the production of goods is passed on, ultimately raising the final costs. The price of basic goods will increase and this will affect demand. In situations where the level of economic activity is on a downward trend, it is imprudent to increase taxes as well as government expenditure.

“Over the years we have unfortunately seen an exodus of investors from Kenya to neighboring countries, some opting to move their operations and sell their final products locally; meaning jobs along the value chains are lost and no new ones are created. Additionally, more money is channeled out of the country instead of circulating within the local economy,” said KAM.

The excise duty rate of Ksh 20 per kg imposed on Sugar Confectionaries and Chocolate, for example, will inevitably be passed on to consumers and reduce the products’ demand. This will consequently have an implication on the number of jobs that can be created and planned investments within this sector.

KAM expects the new tax measures to increase inflationary pressures, and this could easily exceed single digit if amplified by poor weather conditions. Currently, the excise tax paid on excisable goods such as Water, Juice, and Beer, has an inflation adjustment factor. An increase in inflation will necessarily lead to higher excise tax payable. It is important to note that the control of inflation squarely lies with the Government as it has the fiscal and monetary tools to do so.

As a country, KAM suggests that we need to introspectively interrogate how we arrived at this current state of affairs with regard to the economy.