Manufacturers warn high taxes and power costs crippling firms

Solar panels on the rooftop at Two Rivers Mall. [Wilberforce Okwiri, Standard]

Manufacturers have raised the red flag over high taxation and planned further raises in the cost of power which they project could worsen the business environment leading to a shutdown of operations. 

The Kenya Association of Manufacturers (KAM) warned over the weekend the two factors coupled with the ongoing economic slowdown is creating a perfect storm for crippling local businesses.

The manufacturers' lobby said high taxation will not spur investment and demand, especially in the prevailing tough economic times when affordability and share of wallet on essentials is become stretched. When businesses shit down or downsize there is a risk of job losses.

"Last year’s inflation adjustment on excise taxes and the current proposal for an increase by three to fourfold in excise stamp tax will significantly dampen demand and further curtail corporate earnings which shall have a ripple effect on all other taxes including corporate tax, pay as you earn (PAYE) and value-added tax (VAT)," said KAM chairman Rajan Shah.

"This is already being felt as corporate earnings are reported in affected sectors."

Power bills are set to substantially go up beginning April 1 should a tariff review application made by Kenya Power go through as proposed.

In the proposals to the Energy and Petroleum Regulatory Authority (Epra), Kenya Power has asked for an increase of between 72 per cent and 83 per cent in the cost of electricity for households and industries, compared to the tariff that Epra gazetted in January last year.

But KAM said it is advocating for power tariffs cost all-inclusive to be below $0.10 per unit for manufacturers to be competitive in their key markets and their cost to be closer to their other African exporting countries such as South Africa, Egypt($0.03), Morocco, Ethiopia($0.05) and Tanzania ($0.08).

"It is therefore counterproductive to be discussing further tariff increases from where we already are and make us even more uncompetitive," said Mr Shah.

"If we have an agenda of export-led growth, this shall be a key input cost that we shall have to control and reduce, otherwise, we shall stand no chance to grow our export markets."

KAM said the government should reduce power costs for industrial users to below $0.10 per unit in the medium term and make power stable and readily available to industrial users.

The lobby spoke a day after the East African Breweries Ltd (EABL) warned that its business in Kenya was retreating over high excise taxation.

EABL revealed its net profit dropped by 0.39 per cent in the six months to December on the back of higher taxes and input costs, and as price-sensitive consumers shunned the frothy drink.

The brewer - which is controlled by Britain’s Diageo and is known for its flagship Tusker beer - saw its net earnings decline by Sh34 million to Sh8.703 billion in the half year from Sh8.737 billion booked in a similar period in 2021 attributing this to worsened business conditions in Kenya.

EABL Group Chief Executive Jane Karuku said inflation and higher taxes afflicted the brewer by reducing consumers' purchasing power even as input costs jumped due to the high costs of ingredients.

"We have witnessed a slowdown in economic growth across the region, with steep excise tax increases in Kenya adding to the heightened inflationary pressures," she said in a statement.

"As a result, consumer spending power is depressed and operating costs have increased significantly."

KAM said high taxes will also encourage more illicit trade as consumers shall not be able to afford products from the formal sector.

"This has a further impact of denying government revenue through various taxes," he said.

"The third impact will be to reduce our competitiveness in the region where we are exporting and make imported products more competitive."

President William Ruto has promised manufacturers a predictable tax regime as part of his government’s plan to attract investment.

Speaking earlier at a manufacturer’s summit in Nairobi, Dr Ruto said the intention is to create a conducive operating environment so manufacturing can create more jobs and increase its contribution to the country’s gross domestic product (GDP).

Manufacturers have decried uncertainties in Kenya’s tax regime, including frequent changes to the excise duty and VAT, many county levies and unharmonised export taxes that have made it a headache to comply with and plan.

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