Anthony Mwangi: Amend the law to allow structured payment of taxes

ANTHONY MWANGI, the CEO of Kenya Association of Manufacturers, speaks to SILAS NYAMWEYA on the inflation crisis in the country, the challenging environment businesses are operating in and what the organisation is doing to improve the business environment.

What can you say is your greatest achievement so far as KAM?

As you are aware, the business environment has been very tough due to many challenges including drought in the country, and COVID-19 and the Russia - Ukraine conflict that disrupted global supply chains of various commodities such as grains, palm oil and fertilizers. However, if you go to any supermarket, mini-market, shop, kiosk across the country, you will find locally manufactured goods. As such, despite the tough economic conditions, KAM members have kept Kenya moving.

On 19th October 2022, KAM, in collaboration with the ministry of Trade, Investments and Industry, developed the Kenya Manufacturing Agenda 20BY30, which we presented to President William Ruto.

We agreed to increase the manufacturing sector's contribution to the GDP from the current 7.2 per cent (Circa Sh1 trillion) to 20 per cent (circa Sh5 trillion) by 2030. Additionally, we aim at increasing direct jobs from the current circa 348,000 to circa 980,000 jobs.

The plan is guided by four pillars, which, if implemented, shall transform our economy. The pillars include global competitiveness, export-led growth, industrialised agriculture and SME development.

Thus far, the government has adopted an export-led growth strategy as part of its plan to transform the economy, a key win for the Association.

The government has requested companies and businesses with tax arrears to have a chat with the taxman on the way forward as regards clearing them. What's your take on this?

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Taxation is a key source of revenue that enables the government to provide public goods and services to its citizenry.

For many businesses, especially MSMEs, any accrued unpaid taxes that often are too much to be paid at once result in the seizure and auction of personal property; in some circumstances, bankruptcy or liquidation proceedings may be initiated.

The government's proposal on a tax payment plan allows business continuity and compliance. A business's ability to operate sustainably allows the business to recover and still remit taxes to the government as well as retain its employees in the long run, who are dependent on the businesses to earn a living. The payment plan should be fair and flexible enough to allow businesses to pay their arrears as per the agreed period and terms.

A review of the law to incorporate the directive would be of utmost importance so that implementation is based on a laid-out structure and definition.

The price of basic commodities has increased tremendously in recent months. What implication will this have on the economy?

The inflation crisis of 2021/22 is a global phenomenon that has been experienced across many countries, with the pandemic continuing to have long-running ramifications on economies, businesses and households.

In Kenya, overall inflation increased from 9.59 per cent in October 2022 to 9.48 per cent in November and a further 9.10 per cent in December 2022. The high inflation was mainly due to an increase in prices of commodities under food and non-alcoholic beverages (13.8 per cent); transport (13 per cent) and housing, water, electricity, gas and other fuels (6.2 per cent) between December 2021 and December 2022, according to the Kenya National Bureau of Statistics (KNBS).

An increase in the price of basic commodities subsequently reduces the purchasing power of consumers, as well as the demand for products and services in the market. This in turn leads to production inflation amongst manufacturers, and a resultant increase in the price of raw materials and thus decreased demand for the products.

This impact of inflation affects the sustainability of businesses, consequently reducing manufacturing contribution to GDP in the long run.

Do you think the government is on the right track in supporting businesses and industries?

The government has identified key value chains which have the potential to enhance the country's economic growth. Some of these value chains include leather, pharmaceuticals, automotive industry, building and construction industry, textile and apparel and agriculture.

These sectors have the potential to increase the manufacturing sector's contribution to GDP to the envisioned 20 per cent by 2030.

The government needs to put in place various measures to support the growth of these and other sectors in the economy. Some of these measures include tax predictability and enhanced market access.

However, various stumbling blocks still make it difficult for businesses to remain competitive. For instance, the introduction of new taxes, levies, miscellaneous fees and charges imposed on businesses continues to increase the cost of production for many, making it difficult for them to remain competitive.

This poses a great risk of suppressing the manufacturing sector's contribution to the Gross Domestic Product (GDP) which has been shrinking over the last five years, and our vision of doubling the contribution to GDP in the next eight years will remain a pipe dream.

Your organisation has been decrying high charges on stamp duties and unpredictable tax codes, how are you engaging the government to solve the problem?

Recently, we engaged KRA on the need to retain the current charges on the excise stamps. We continue to call upon the government to finalise and implement the National Tax Policy, with a focus on enhancing certainty and predictability in the tax code.

The proposed drastic price increase on EGMS stamps seeks to be a revenue collection mechanism as opposed to an assurance tool. This is based on the proposal seeking to increase the cost to levels of over 100 per cent and beyond the current market costs of producing the stamps.

Over the years, KAM has continued to advocate for a predictable tax regime. This is attributed to the fact that predictability earns investor confidence in the country, leading to increased local and foreign investments.

However, sudden changes in fiscal policy and regulations such as the proposed increment in stamp duties divert the industry's resource allocation from productivity into meeting the costs associated with changes towards fast compliance.

Your parting shot?

As an Association, we are committed to seeing the manufacturing sector's contribution to GDP grow from the current 7.2 per cent to 20 per cent by 2030.

Realising this vision calls for bold, pragmatic decisions to develop and implement transformative industrial policies that will favour the local manufacturing sector and attract investors.

We look forward to working with Government and development partners to achieve our aspiration for an industrialised Kenya.