Production costs are one of the biggest determinants of the prices that manufacturers set for their products.
Goods makers in Kenya are asking for a stable and predictable policy, timely tax refunds, strict adherence to regional tax structure, and an economic stimulus plan to inject growth in a sector that grew by a lower 3.2 per cent in 2024.
The Kenya Manufacturers Association (KAM) said the sector’s growth potential remains stifled by a bad business environment.
“For the government to increase the manufacturing sector GDP contribution to 20 per cent by 2030, to create jobs, grow taxes, and promote manufactured exports, we need to have a stable and predictable policy environment,” the lobby said in newly published recommendations.
“This can be achieved through strict adherence to the National Tax Policy that amongst others, seeks to ensure a stable and predictable tax environment including allowing major tax changes after every four years. Bearing in mind that private sector activity cannot thrive under uncertainty,” it added.
Businesses in Kenya have recently been hit by several U-turns on sensitive areas of excise tax and the experience hasn’t been pleasant for manufacturers and traders amid concerns that such sudden changes in fiscal policy and regulations divert resource allocation from productivity to meeting compliance costs.
“Also important is the need to adhere to the principles behind the East African Community Common External Tariff (EAC CET) structure. These CET principles should act as a guide while imposing domestic taxes, especially the Excise Duty Act,” said KAM. With effect from 1 July 2022, EAC CET introduced a four-band tariff with a minimum duty rate of 0 per cent, rates of 10 per cent and 25 per cent, and a maximum rate of 35 per cent with respect to all products imported into the trade bloc.
The levy is imposed on imported finished products from non-member States in a strategy to stimulate local industry and production.
The new levy affects a tax band of products including iron and steel, edible oils, furniture, leather products, fresh-cut flowers, fruits, nuts, sugar and confectionery, coffee, tea, spices, head gears, ceramic products, and paints.
“These CET principles should also act as a guide while imposing domestic taxes, especially the Excise Duty Act. The National Industrilisation Policy should be reviewing the current ones,” said KAM.
Manufacturers said the sector is also desperate for finances, including billions in unpaid VAT refunds.
“Liquidity is the ‘blood’ that keeps businesses running. The government should ensure timely refund of VAT to businesses. This includes immediate settlement of the estimated Sh15 billion of outstanding VAT refunds and increasing monthly allocation of VAT refunds to at least Sh 4 billion,” the industrialists said.
The lobby said public financial institutions such as the Kenya Industrial Estates and the Kenya Development Corporation should be adequately capitalised to offer long-term and affordable loans, considering that industrial firms require “patient” capital.
KAM also called for a bigger focus on small and medium enterprises (SMEs) on access to financing and good governance.
“Some of the measures that can be deployed to increase access to finance include giving a five-year tax moratorium to SMEs to enhance cash flow and foster sustainability beyond the initial five-year period,” it said.
The lobby recommended that 20 per cent of the Credit Guarantee Scheme funds be ring-fenced for SMEs in the manufacturing sector and recapitalise the schemes to increase loan amounts to at least Sh20 million with a term repayment of up to eight years.
KAM further urged for affordable input to spur the agro-processing industry.
