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Tax ‘mitumba’, textile firms plead

By Frankline Sunday | Updated Thu, June 27th 2013 at 00:00 GMT +3

By Frankline Sunday

Kenya: The cost of second-hand clothes, popularly known as mitumba, could rise if the Government introduces a levy on them as recommended by local garment manufacturers.

Led by the industry lobby group, African Cotton and Textile Industries Federation (Actif), textile manufacturers are recommending that the money collected from the taxes be used to create a Sh300 million Stabilisation Fund that would go towards subsidising cotton farmers.

This was among recommendations given in a study conducted to chart the way forward in reviving the textile industry that has been in a three-decade-long slump.

Policy blunders

The study, which was commissioned by Actif, says that the country has made several policy blunders that have contributed to the near collapse of the cotton industry.

“Establishing the Stabilisation Fund will enable the Government cushion cotton farmers from international price fluctuations, which erode earnings for most farmers in the country,” said former Trade Permanent Secretary Margaret Chemengich, who conducted the study.

She added that the fund would not only help set a fixed price for cotton delivered, but also assist in funding seed production and setting up of ginneries and mills to ensure that seed cotton is processed at favourable prices.

“The fund will be applied in Minimum Support Price mechanisms for seed cotton that supports minimum returns per kilogramme, with a minimum price of Sh40 per kg,” she said.

However, the impact of more taxes on mitumba is likely to further increase the cost of the clothes and shoes that a majority of Kenyans prefer for their low prices and variety.

At the beginning of last year, the Kenya Revenue Authority (KRA) increased taxes on imports of second-hand clothes, with a 20-foot container hitting a high of Sh1.9 million, up from about Sh1.1 million.

This doubled the prices of second-hand clothes, which saw traders register massive losses as consumers shunned their stalls.

Government interventions

The Actif report also recommends that the Government implement a 30 per cent quota in the procurement of uniforms for public officials as part of policy interventions in the textiles sector, which could also see Kenya save up to Sh12.5 billion.

The lobby group wants the Government compelled to procure sheets, linen and towels for hospitals and hotels from local manufacturers.

Already, local garment manufacturers enjoy 15 per cent preferential treatment in the procurement of Government orders, but they say this has not had the expected impact on the industry.

According to Mr Rajeeve Arora, the executive director of Actif, increasing the quota to 30 per cent would strengthen local sourcing.

“By gaining this market share, Kenyan textile manufacturers can expand to the extent of employing over 100,000 people, compared to the 2,000 people currently employed,” he said.

Kenya is said to manufacture less than 12 million square metres of woven fabric per year, a paltry 7 per cent of the potential market, with the other 93 per cent taken up by imports.