Government and Policy

The Finance Bill 2024: A Roadblock To Economic Stability And Business Growth

BY Steve Biko · June 12, 2024 01:06 pm

The Finance Bill 2024 has sparked widespread backlash from both citizens and businesses across the nation. A chorus of voices, including those from major manufacturers like East African Breweries Limited (EABL), argues that the bill will have disastrous consequences for the economy, escalating the prevalence of counterfeit goods and driving legitimate businesses to the brink of collapse.

The Finance Bill 2024 is poised to undermine economic stability, exacerbate the counterfeit market, and force manufacturers to consider relocation, highlighting the urgent need for a more sustainable and predictable approach to fiscal policy.

Increased Costs and Consumer Burden

One of the primary concerns voiced by EABL and other manufacturers is that the Finance Bill 2024 will significantly increase the cost of production and, consequently, the retail prices of their products. Higher taxes on raw materials and finished goods mean that companies will need to pass these costs onto consumers to maintain profitability. This price hike will make everyday products, including essential items and popular consumer goods, unaffordable for a large segment of the population.

Proliferation of Counterfeit Goods

With legitimate products becoming too expensive for many consumers, the demand for cheaper alternatives will inevitably rise. This creates a fertile ground for counterfeit goods to flourish. Counterfeit products not only undermine the revenue of legitimate businesses but also pose serious health and safety risks to consumers. EABL has already observed an increase in counterfeit alcoholic beverages in the market, a trend that is likely to worsen under the new bill.

Impact on Business Viability

For many manufacturers, the Finance Bill 2024 introduces a level of financial strain that threatens their very existence. The increased tax burden will squeeze profit margins, making it difficult for businesses to reinvest in their operations, innovate, and grow. Smaller businesses, which lack the financial resilience of larger corporations, will be particularly hard hit. Many may be forced to shut down, leading to job losses and a decline in economic activity.

Potential for Business Relocation

Facing insurmountable operational costs, some manufacturers might consider relocating their production facilities to countries with more favorable tax regimes. This exodus would result in a loss of local jobs and a decrease in tax revenues, further exacerbating the economic challenges the bill seeks to address. EABL, a major player in the region’s economy, has hinted at such possibilities, reflecting a broader sentiment among businesses.

Erosion of Competitive Edge

High taxation can erode the competitive edge of local businesses on the global stage. Companies operating under the Finance Bill 2024 will find it challenging to compete with international counterparts that benefit from lower tax burdens and more supportive business environments. This could lead to a decline in exports, widening the trade deficit and weakening the national currency.

Threat to Investment Climate

The Finance Bill 2024 sends a negative signal to potential investors. The perception of a hostile tax environment can deter foreign direct investment, which is crucial for economic growth and development. Investors seek stable and predictable regulatory frameworks, and the bill’s perceived instability could drive them to more welcoming markets.

Strain on Innovation and Growth

High taxes limit the ability of businesses to invest in research and development. Innovation is a key driver of economic growth, and without adequate investment in new technologies and processes, the country risks falling behind in the global economy. EABL and other manufacturers emphasize that sustainable growth requires an environment conducive to innovation, which the Finance Bill 2024 fails to provide.

Impact on Consumer Spending

The increased cost of goods and services will reduce disposable income for many households. This decline in purchasing power can lead to a contraction in consumer spending, which is a critical component of economic activity. As consumers tighten their belts, businesses will see reduced sales, further compounding the economic downturn.

Job Losses and Economic Decline

The Finance Bill 2024 threatens to trigger a cycle of job losses and economic decline. As businesses struggle to cope with higher taxes, many will be forced to downsize or shut down entirely. The resulting unemployment will decrease household incomes, leading to reduced consumer spending and further business closures—a vicious cycle that could devastate the economy.

Call for a Balanced Approach

While the government needs to generate revenue to fund public services, the Finance Bill 2024’s approach is overly burdensome. There is a need for a more balanced fiscal strategy that supports business growth while ensuring fair taxation. This could include measures such as tax incentives for businesses that invest in local communities, graduated tax rates based on company size, and enhanced support for small and medium enterprises.

Alternative Revenue Generation Strategies

Rather than relying solely on high taxation, the government should explore alternative revenue generation strategies. This could involve improving tax compliance, broadening the tax base, and leveraging public-private partnerships to fund infrastructure projects. By adopting a diversified approach, the government can raise the necessary funds without stifling economic growth.

Strengthening Regulatory Frameworks

To combat the rise of counterfeit goods, the government must strengthen regulatory frameworks and enforcement mechanisms. This includes improving the efficiency of customs operations, enhancing market surveillance, and imposing stricter penalties on counterfeiters. Effective regulation can protect consumers and legitimate businesses alike.

Encouraging Public-Private Dialogue

A constructive dialogue between the government and the private sector is essential for crafting policies that promote economic growth. By involving businesses in the policy-making process, the government can better understand the challenges they face and develop more effective solutions. EABL and other manufacturers advocate for a collaborative approach to fiscal policy.

Enhancing Economic Resilience

The Finance Bill 2024 must be reevaluated with a focus on enhancing economic resilience. This involves creating a business environment that supports recovery and growth, particularly in the aftermath of economic disruptions. Policies should aim to build a robust and diversified economy capable of withstanding external shocks.

Promoting Inclusive Growth

A sustainable fiscal policy should promote inclusive growth, ensuring that all segments of society benefit from economic progress. This includes addressing income inequality, providing social safety nets, and investing in education and healthcare. A fair tax system is one that supports the welfare of all citizens while fostering business growth.

A Call for Reconsideration

The Finance Bill 2024, in its current form, poses significant risks to the economy, businesses, and consumers. It threatens to increase the proliferation of counterfeit goods, drive legitimate businesses to shut down or relocate, and erode the competitive edge of local industries. EABL and other manufacturers highlight the urgent need for a more balanced and sustainable approach to fiscal policy. By reconsidering the bill and adopting measures that support business growth and economic stability, the government can ensure a prosperous future for all.