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Cement firms at war over taxes on key raw material

BUSINESS
By Macharia Kamau | April 3rd 2021
Mombasa cement factory in Athi River, Kajiado. [Elvis Ogina, Standard]

Cement firms are embroiled in a vicious fight over the sourcing of clinker, which is critical in the manufacturing of the product.

A segment of the industry is pushing for an increase in taxation of imported clinker, arguing there is adequate capacity to produce it locally.

Mombasa Cement and National Cement, who produce clinker locally for their operations and sale of excess to competitors, have asked the National Treasury to increase duty on imported clinker to 25 per cent from 10 per cent, or even consider a total ban on imports, citing the government’s campaign of ‘Buy Kenya Build Kenya’.

Their rivals, who do not have clinker producing facilities, however oppose the proposals on the grounds that they would be compelled to get the clinker exclusively from the competition, which would put them at a disadvantage with the possibility that their products would retail at higher prices.

Bamburi, Savanna, Ndovu and Rai Cement, who are opposing the tax hike proposal, have also written to Treasury, arguing there is no case for imposing restrictions on importation of clinker considering that the local product is priced lower than the import.

“A tariff raise at this time risks distorting the market and setting the stage for unfair competition,” said Seddiq Hassani, the Bamburi Cement managing director in a March 25 letter to Treasury on behalf of the four firms.

“This has the potential to result in significant damage to investments made within the cement sector over the last few years and resultant loss of revenue, taxes and jobs.”

He said there is no compelling reason for the proposed tariff action to be taken as they see no risk for both players because global clinker prices, though fluctuating, are higher than locally

“With competitors’ pricing, correct quality and quantity the local clinker manufacturers are well placed to compete effectively,” said Hassani.

“Additionally, there is a deficit of clinker in the Uganda market. The two players are able to supply their own operations in Uganda without distorting the Kenyan market.”

He added that should the government be inclined to consider such a move, it should give the companies ample time to build their own clinker production capacity.

They are asking for between four and five years to make such an investment.

“We wish to reiterate that we all fully support the government position of ‘Buy Kenya, Build Kenya’,” said Hassani.

“Our position on the proposals for increase of the (tax) for imported clinker is that the other cement players be allowed a four to five-year window to set up their own clinkering facilities, as this provides a predictable policy framework for all investors.

“We are currently at various stages in the investment process of additional facilities and are committed to ensuring that we are clinker-sufficient within this time frame.”

Lugari MP Ayub Savula last week sought word from Treasury, through the Speaker of the National Assembly, on the progress that the government has made on the proposals to increase the tax.

“What progress has the Cabinet Secretary for National Treasury done in regard to a proposal to review the duty on imported clinker from the current 10 per cent to 25 per cent or a complete ban?” he asked.

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