New tax move to drive illegal trade, lobbies warn Treasury

Kenya Association of Manufacturers Chairman Mucai Kunyiha. [File, Standard]

Private sector players have warned that proposals by the National Treasury to increase taxes on some commodities could have a far-reaching impact on the economy.

In their submissions to Parliament, different industry players noted yesterday that Treasury’s proposals contained in the Finance Bill, 2022 across different products, including flour, alcoholic beverages and cosmetics could be counterproductive. They said some of the tax measures might not necessarily lead to increased tax revenues over the next financial year, with consumers likely to cut back on consumption, in turn, leading to the growth of the black market.

Treasury expects to raise Sh50.4 billion over the upcoming 2022/23 financial year through the proposed tax measures contained in the Bill.

“You cannot keep increasing taxes when everybody else is crying and saying life is hard. We need to adjust our pockets… the Government should also minimise how much it is taking from us,” said Kenya Association of Manufacturers Chairman Mucai Kunyiha in his presentation to the National Assembly’s Finance Committee.

The Finance Bill 2022, which is currently going through the public participation phase, proposes a 16 per cent Value-Added Tax on maize, wheat and cassava flours. The Bill has also proposed increasing excise duty on motorcycles (10 per cent), beer (10 per cent), spirits (20 per cent) and cosmetic and beauty products (15 per cent). Treasury also proposes a 15 per cent duty on advertising fees for adverts on alcohol and gambling as well as a 25 per cent duty on glass.

And businesses that are dissatisfied with the ruling of the Tax Appeals Tribunal (TAT) will be required to deposit 50 per cent of the disputed tax amount when they appeal to the High Court.

“The plan to levy VAT on maize flour is not only poorly timed but is also contemptuous,” said Consumers Federation of Kenya (Cofek) Secretary-General Stephen Mutoro.

“At a time when consumers are battling with depressed wages, high commodity prices and lack of job opportunities, Treasury adds salt to this injury with VAT on a staple that many families are already struggling to put on the table.”

Mr Mutoro noted that year-on-year tax increases on commonly used products could also create a black market, which results in a loss for consumers, industries and the government.

KAM’s Mr Kunyiha, meanwhile, noted that some of the tax measures could lead to companies shrinking on account of factors losing the competitive edge to importers as well as underground trade. Kenyan products also risk being locked out of the regional markets at a time when Africa is implementing the Africa Free Continental Free Trade Agreement (AfCFTA).

“The imposition of a 10 per cent increase in excise taxes on these goods is expected to have a marked impact on the industry, particularly the loss of revenue on other taxes (PAYE, VAT, corporate income tax) due to loss of market share because of price increases,” he said.

Similar sentiments on loss of tax revenues as opposed to growing taxes were echoed by East African Breweries Ltd (EABL). EABL’s subsidiary Kenya Breweries Ltd (KBL) in its presentation to MPs noted that the proposals to increase excise duty on alcoholic beverages had the risk of increasing contraband and illicit products in the market. “The Finance Bill 2022 proposes to make legitimate alcohol more expensive than ever before,” said the brewer.