KAM Statement on the Implications of the Finance Act, 2021 on the Manufacturing Sector

On the Finance Act 2021 Kenya Association of Manufacturers (KAM) would like to state the following: 

Early this year the Finance Bill 2021, which contained a raft of tax measures with substantial impact to various sections of the economy, was proposed after extensive engagement with stakeholders.

However, in the new Finance Act 2021, tax provisions which were not subject to public participation were introduced. The public participation process is a key principle in public financial management, and this move has denied affected taxpayers an opportunity to interrogate the impact of these measures on their cost of living and doing business.

These new additions have dealt a significantly negative blow to the gains foreseen by many businesses in the Bill and have a far-reaching debilitating impact on key sectors of industry. For instance, excise tax has been introduced on a variety of raw materials, effectively increasing the cost of manufacturing and final consumer prices. 

It is imperative that the Government understands that the inclusion of these taxes significantly threatens the Made in Kenya goal, and gives an upper hand to cheaper imports from other countries. Additionally, the local manufacturing sector, which is still struggling through the worst of the pandemic effects, continues to lose its competitiveness in both local and export markets. 

Kenya Association of Manufacturers is particularly concerned about the following added taxes: 

• Imposition of 10% excise tax on articles of plastics.
• Imposition of 10% excise tax on imported resins.

• Imposition of 10% excise tax on super absorbent polymer (SAP) used in the manufacture of baby diapers.
• Imposition of Ksh. 200 per kg excise tax on locally produced white chocolate.
• Imposition of excise tax on imported fertilized eggs for incubation/hatching.
• Imposition of 16% VAT on the supply of liquefied petroleum gas (LPG) including propane.
• Imposition of 16% VAT on clean and improved cook stoves.

• Imposition of higher specific import duties for some categories of timber products.
• Provision to limit interest to be deducted to a maximum of 30% of Earnings Before Interest Tax, Depreciation and Amortization.

Not only are the above taxes counterproductive, as they are in complete contradiction of the ‘Do No Harm’ approach to local businesses on the recovery track; but their domino effect has acute consequences across all sectors and their value chains.

This includes infant industries in the food and beverage sector, dairy, soft drinks, distribution businesses, retailers and more importantly the consumers. Also adversely affected are emerging segments of manufacturing such as baby diapers and chocolates, of which Kenya has previously been a net importer.

It is particularly concerning that these taxes came into effect on 1st July 2021, two days after the President assented to the new Finance Act. Manufacturers were totally uninformed and unprepared to start implementing the excise regime and, in many cases, the enforcement of the provisions remains unclear.

Adding to this conundrum for businesses, the Kenya Revenue Authority I-tax system was also not prepared for some of these changes and manufacturers cannot, for example, register to collect excise on plastic bottles, forestalling production and sales and severely diminishing efforts to steer the country from the pandemic effects. 

These last-minute additions into a critical national document are impractical and ineffective.  Taxation has become a major area of frustration for businesses in the country as large segments of the Kenyan economy are invariably pushed into the informal sector.  

The Association calls for the immediate suspension of these provisions and urges for a more comprehensive engagement with industry, to cushion citizens from further loss of their purchasing power of basic commodities. 

Mucai Kunyiha,  
CHAIRMAN