Manufacturers warn Finance Bill proposals will raise costs, kill jobs

Kenya Association of Manufacturers CEO Anthony Mwangi during the launch of the Responsible Care Kenya Initiative at the Norfolk Hotel on Jully 5, 2023. [David Gichuru, Standard]

Manufacturers have protested at some of the proposals in the Finance Bill, 2024, noting they will make locally made products expensive and uncompetitive in the country and the region.

The companies claimed the taxes imposed by last year’s Finance Act have crippled some of the local industries, whose products have become too expensive to compete with imports.

The Kenya Association of Manufacturers (KAM) has resulted in the importation of some of the products that were being made locally. The affected products include steel and paper due to the Export Investment Promotion Levy. The government has now proposed the expansion of this levy to include imported raw materials used in local manufacturing of paper packaging materials.

"Kenya operates within EAC Common Market, Comesa and now AfCFTA and any fees, levies and duties that are imposed affect Kenyan products and companies only, as domestic taxes,” said KAM Chief Executive Officer Anthony Mwangi.

“Therefore, Kenyan companies and products become uncompetitive, and our market gets flooded with products from other EAC and COMESA countries.”

Jobs at risk

He noted that the country used to be the largest exporter of paper and steel products to EAC, but this is no longer the case due to the taxes imposed last year.

“With mwananchi still recovering from the adverse impact of the fiscal changes imposed in 2023, we strongly believe that the focus as a country must be on supporting the manufacturing industry to reduce the cost of locally produced products and services, to drive job and wealth creation, boost productivity. As a result, it will lower the cost of living for mwananchi and create prosperity for Kenya.”

The sector has plans to grow its contribution to the Gross Domestic Product to 20 per cent by 2030. Last year, its contribution stood at 7.6 per cent, having declined from 7.7 per cent. The trend has been steadily going down over the last decade from over 11 per cent. 

KAM has warned against the Export Investments Promotion Levy on raw materials used for manufacturing value addition. 

“This levy shall be detrimental to the competitiveness of local industries in both local and export markets through the increased cost of production. It suffices to say that in 2023, this said levy was imposed on industrial raw materials such as kraft paper, steel billets and cement clinkers, ostensibly to support local manufacturing,” said Mwangi, adding that an analysis on the impact of the levy shows damning consequences.

“The impact of EIPL on the paper, steel and cement sectors has had unparalleled negative unintended consequences in those sectors that are crucial to the economy. The cost of construction has since gone up by at least 40 per cent due to this unwarranted policy action.”

The manufacturers warned that the introduction of eco-levy, through which the government aims to promote responsible waste management, could however end up squeezing household budgets and hindering access to essential technology.

KAM said the levy will reverse Kenya’s initiatives to create a circular economy to manage its waste and become a regional recycling hub through the proposed removal of the incentive to increase investments in recycling of waste products. 

“The introduction of eco-levy on selected goods… will automatically lead to a price increase on all plastic packaging materials, batteries, and hygiene products,” said Mwangi.

“For instance, the impact of this proposal will increase the packaging costs by 100 per cent in cases where the cost of the raw material is equal to the proposed levy. For example, bar soap used by mwananchi for washing clothing, utensils and bathing, will increase from Sh170 to approximately Sh270.”

At the same time, aviation industry players warned that some of the proposals could see the sector stagnate. The Bill has proposed the elimination of VAT exemptions on aeroplanes and aviation services.

The Kenya Association of Air Operators also noted that doing away with the exemptions poses significant risk to other sectors like tourism.

The Finance Bill has proposed the removal of VAT exemptions on airplanes with an unladen weight exceeding 2,000kg but not exceeding 15,000kg as well as spacecraft, including satellites and sub-orbital and spacecraft launch vehicles.

Aircraft operations

The hiring, leasing and chartering of aircraft, except helicopters, will also be subjected to a standard VAT rate.

“The revocation of aircraft VAT exemptions will precipitate a significant surge in acquisition costs for airlines and operators. This, in turn, will trigger escalations in air travel and charter services, cargo services, aerial services, unmanned aircraft vehicle (UAV) services, balloon operations, aircraft repair and maintenance and training prices, thereby impeding the sector's growth trajectory in maintaining and developing Kenya’s air transport system,” said KAAO.

“The proposed abolition of VAT exemptions on hiring, leasing, and chartering aircraft poses a significant risk of escalating operational costs. Such a scenario could result in diminished accessibility and affordability of these vital services, impacting sectors reliant on aviation, including tourism, trade, and emergency response.”