Manufacturers in court to block new tax curbing cheap imports

Manufacturers have moved to court to oppose a new tax imposed on certain imports to protect a section of local industries from cheap imports.

The Exports and Investment Levy, which was introduced by the Finance Act 2023 and kicked in on September 1, will see importers pay 17.5 per cent on clinker – a key ingredient in the production of cement – and metal products (such as wire rods and billets) and 10 per cent on packaging paper products. The move, which is meant to protect and prop up the local clinker, steel and paper producers, has not gone down well with other industries that are the primary users of these products.

The Kenya Association of Manufacturers (KAM) has moved to court in a bid to quash the implementation of the levy, saying it would push up the cost of their production and, in turn, increase the cost of their products, making them uncompetitive. “After much consideration, KAM has today (Thursday) filed a constitutional petition before the High Court seeking to challenge the legality of the Export and Investment Promotion Lecy under the Finance Act, 2023 that came into effect on September 1, 2023,” said the manufacturers’ lobby in a notice to its members after filing the petition.

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“The levy seeks to impose levies of as much as 17.5 per cent on raw materials and intermediate products imported into the country for use in the manufacturing production in cement, steel and paper sectors. We believe the imposition of this levy shall not achieve its intended objective of promoting and safeguarding local industries from imported finished products in the country.”

Higher taxation on raw materials, said KAM, could also make Kenyan products  more expensive compared to neighbouring countries.

During the budget-making process, KAM protested the levy, noting that more taxes on imported raw materials went against the established taxation regimes such as the East African Community (EAC) Common External Tariff (EAC-CET) and export-led Duty Remission Scheme (DRS). Currently, clinker, wire rods and billets attract 10 per cent, 25 per cent and zero per cent respectively in the recently approved EAC CET.

“An additional levy on imported raw materials and intermediate products will render Kenyan products uncompetitive compared to EAC Partner States and within the African Continental Free Trade Area (AfCFTA). This move will have an immediate effect of negative trade flows with our regional partners,” said KAM in a presentation to the National Assembly Budget and Appropriations Committee earlier this year.

“It is our position and proposal, therefore, that the (levy) on imports should spare raw materials and intermediate products, and instead, charge it on finished products only, except for goods originating from EAC Partner States due to Custom Unions Protocols, and countries with Free Trade Area (FTA) agreements with Kenya like the Common Market for Eastern and Southern Africa (COMESA) and Africa Continental Free Trade Agreement (AfCFTA).”

Manufacturers have in the past opposed increasing taxes on imported clinker, noting that the local clinker production capacity is not enough. According to the documents filed in court by KAM, out of the seven cement manufacturers, only four have clinker production capacity and can only produce 3.8 million tonnes annually, while the industry needs 5.3 million tonnes of clinker.

Other than the manufacturers, other sectors of the economy have opposed the Export and Investment Levy, including the Kenya Flower Council (KFC), which has cast doubt on the quality of the locally produced packaging paper.