Why inflation adjustment should not be implemented

Kenya Association of Manufacturers (KAM) identifies with the current government’s manifesto: The Plan – The Bottom-up Economic Transformation Agenda 2022-2027.

The plan recognises and appreciates the challenges Kenyans face daily, particularly the high cost of living. It demonstrates the government’s deep understanding and commitment to developing sustainable solutions for all.

KAM remains committed to working closely with government to transform the economy.

The plan has singled out regressive taxation, bureaucracy and regulatory compliance costs as the biggest impediment to getting Kenya out of the “economic hole” we are currently in.

The starting point for the economic transformation journey is the commitment to reviewing and rationalising all business licences to cap total licensing costs at 1.5 per cent of turnover fees. As rightly articulated in the plan, enacting an administrative burden law analogous to the United States of America’s Reduction of Paperwork Act will ensure that no business spends more than four person-hours a month on tax and regulatory compliance.

Over the years, cost of doing business in Kenya continues to be a significant roadblock to economic prosperity. More specifically, the hash tax regime is a ‘zero-sum game’ that has shifted manufacturing to our East African Community (EAC) neighbours who are now exporting to Kenya.

Unfortunately, as they implement the government’s economic plan, Kenyans are now facing a new regressive taxation challenge - the proposed inflation adjustment on specific excise tax rates.

The Kenya Revenue Authority (KRA) said it will adjust excise duty rates on products including petroleum, motorcycles, alcoholic and non-alcoholic beverages, bottled water and SIM cards (which were just listed as excisable less than three months ago). The taxes will go up by 6.3 per cent, the average inflation rate for the financial year 2021-22, as determined by the Kenya National Bureau of Statistics.

The new rates are effective from October 1, 2022.

The Finance Act, 2022 increased excise tax rates by 10 per cent and 20 per cent, effective July 1, 2022. A further increase of 6.3 per cent within three months will result in a massive 16.3 per cent to 26.3 per cent cumulative tax increase in one year.

Such an increase will significantly impact on mwananchi, who is already overburdened by the ever-increasing cost of living.

The author is the chief executive of Kenya Association of Manufacturers