KAM Statement on the Finance Bill, 2024

The Kenya Association of Manufacturers (KAM) acknowledges the government’s initiatives towards driving manufacturing sector growth to enhance its contribution to Gross Domestic Product (GDP) from 7.8% to 20% by 2030. Manufacturers share this vision with the Government of Kenya, aimed at increasing jobs from 352,000 to 1 million jobs, tax contribution from Kes. 360 billion to Kes. 1 trillion and value-added output from USD 8.5 billion (Kes 1.1trillion) to USD 50 billion (Kes 6.5 trillion).

Whereas there are such progressive proposals in the Finance Bill 2024 aiming at promoting manufacturing growth, we are concerned that several others shall hinder this objective, and ultimately impact Mwananchi.

From the first principles, Kenya operates within EAC Common Market, COMESA and now AfCFTA and any fees, levies, and duties that are imposed by the Government of Kenya affect Kenyan products and companies only, as domestic taxes. Therefore, Kenyan companies and products become uncompetitive, and our market gets flooded with products from other EAC and COMESA countries. For instance, Kenya used to be the largest exporter of paper and steel products to EAC, but due to the Finance Act 2023, we have become an importer of paper and steel products. Below, we have highlighted some of the expected impacts of the proposed Finance Bill, 2024:

• The Bill proposes to impose the Export Investment Promotion Levy (EIPL),under the Miscellaneous Fees and Levies Act, on raw materials used for manufacturing value addition.  This levy shall be detrimental to the competitiveness of local industries in both local and export markets through the increased cost of production. It suffices to say that in 2023, this said levy was imposed on industrial raw materials such as kraft paper, steel billets, and cement clinkers, ostensibly to support local manufacturing. Whilst KAM is in full support of local manufacturing, imposing EIPL on raw materials without data verification does more harm than good. Indeed, KAM has analyzed, in detail, the impact of EIPL on the paper, steel and cement sectors and has noted unparalleled negative unintended consequences in those sectors that are crucial to the economy. The cost of construction has since gone up by at least 40% due to this unwarranted policy action. Regrettably, we have noted an enhanced list of products under EIPL in the Finance Bill 2024 such as raw materials for manufacturing of paper packaging materials, critical for packaging food products and household items.
• The introduction of eco-levy on selected goods manufactured in Kenya or imported into Kenyaprovided under Schedule Four of the Miscellaneous Fees and Levies Act will automatically lead to a price increase on all plastic packaging materials, batteries, and hygiene products. Notwithstanding that KAM is at the forefront of supporting environmental conservation, the Eco Levy will not only duplicate the existing Levy mandated under Extended Producer Responsibility Schemes, but it will also further, reverse Kenya’s initiatives to create a circular economy to manage its waste and become a regional recycling hub through the proposed removal of the incentive to increase investments in recycling of waste products. For instance, the impact of this proposal will increase the packaging costs by 100% in cases where the cost of the raw material is equal to the proposed levy. For example, bar soap used by Mwananchi for washing clothing, utensils and bathing will increase from Kes. 170 to approximately Kes. 270.
• The proposal to increase the Import Declaration Fund (IDF) from 2.5% to 3.0%will negatively impact the cost of raw materials and intermediate products used for manufacturing value addition. Again, this will result in lowering the competitiveness of local industries in domestic and export markets due to a rise in the cost of imported inputs, raw materials, and machinery and hence favourable to imported finished goods.
• Under the Excise Duty Act, the government has proposed to remove the provision allowing manufacturers to offset the costs of their raw materials subject to excise. The offset mechanism is meant to encourage local value addition. In addition, the proposal to introduce a 10% excise duty on plastic products will increase the cost of products like basins and mugs used by  For instance, the cost of a basin will increase from Kes.110 up to approximately Kes. 200 due to this proposal combined with other levies such as eco levy.
• The proposed 25% excise duty on vegetable oils will drive upwards the cost of cooking oil which remains an essential commodity, ultimately increasing the cost burden to Mwananchi who is already reeling from the effects of increased cost of living and reduced disposable income. This cost combined with other costs introduced such as eco levy on plastic packaging will drive up the cost of cooking oil by up to 80%.

KAM is concerned that to date the government is yet to adopt the National Taxation Policy that aims to assure both local and foreign investors have certainty and consistency in tax policies, including a framework for granting tax incentives and a favourable regulatory tax regime. For instance, exporters continue to be faced with export barriers such as delays in VAT refunds, and high costs of intermediate products, and inputs including packaging costs which deter exports in the manufacturing sector.

With Mwananchi still recovering from the adverse impact of the fiscal changes imposed in 2023, we strongly believe that the focus as a country must be on supporting the manufacturing industry to reduce the cost of locally produced products and services, to drive job and wealth creation, boost productivity, as a result, it will lower the cost of living for Mwananchi and create prosperity for Kenya.

We urge the National Assembly to consider the views of all stakeholders, including citizens and the business community, before adopting the proposals in the Finance Bill, 2024.

Anthony Mwangi

CHIEF EXECUTIVE