Edible oil manufacturers oppose 25 per cent excise duty

Edible oil on sale at Mama Watoto Supermaerket in Kakamega. [Mumo Munuve, Standard]

Edible oil manufacturers in the country have called for the scrapping of the proposed 25 percent excise duty on vegetable oil in the Finance Bill 2024, warning that cooking oil prices could increase by 80 percent.

Through their association, the manufacterers raised concern with the tax noting that it would apply to both raw materials and refined cooking oils and cautioned members of Parliament against passing the same.

“If implemented, this excise duty will trigger an unprecedented surge in the price of cooking oil, a staple in Kenyan households,” stated the association in a press statement sent to newsrooms.

“The cost of this essential commodity is projected to skyrocket by 80 percent, rendering it unaffordable for millions of Kenyans, particularly low-income earners and small-scale traders, commonly known as "hustlers" and "mama mbogas."

The association cautioned that an increase in the price of cooking oil would have a ripple effect on the price of other commodities such as bread which uses cooking oil during the baking process. Its price will increase from a current Sh70 to Sh80.

The price of long bar soap, which is derived from vegetable oils, is also set to increase from Sh180 to Sh270. Margarine (250g) will also shoot up in price from Sh160 to Sh300.

Other commodities such as mandazis, chapatis, and chips will be affected by a surge in prices.

“Such price hikes will disproportionately affect the most vulnerable members of society, exacerbating the already high cost of living and plunging millions into deeper financial distress,” further read the statement.

Adding: “The 25 percent excise duty threatens to dismantle the government's own agenda of promoting local value addition in agribusiness and could stymie the growth of local edible oil production.”

The association also noted that if passed, the Finance Bill as currently constituted would put at risk 40,000 jobs as manufacterers would have to trim their work force, further exacerbating the unemployment crisis.

“The edible oils sector is a significant contributor to Kenya's economy, directly employing approximately 10,000 individuals and indirectly supporting over 30,000 jobs. The proposed tax risks decimating these livelihoods and destabilizing the manufacturing industry at large,” it reiterated.

The manufactures termed the tax as draconian and an economic miscalculation which has the potential of causing a humanitarian crisis that the country cannot afford.

The development comes just days after Kenyan insurers called on the National Assembly to do away with the proposed motor vehicle circulation tax in the 2024 Finance Bill.

The proposed legislation seeks to introduce an annual tax that will be paid during motor vehicle insurance coverage acquisition. The levy will be 2.5 per cent of the vehicle’s value and has been set at a minimum of Sh5,000.

The Association of Kenya Insurers (AKI) however argued that the tax will significantly increase the cost of motor insurance, whose premium rate stands at 5 per cent for comprehensive covers.

And to cushion themselves from the high taxes, AKI executive director Tom Gichuhi foretold of a majority of motorists moving to third-party insurance covers.

“With motor vehicle insurance being compulsory in Kenya, we anticipate a major shift towards third-party motor insurance if this tax is implemented. Consequently, motorists will face higher risks, as they will essentially only be covered for third-party liabilities, leaving their vehicles unprotected in the event of accidents,” said Gichuhi in a statement released on Friday.
 “This could burden motorists with significant out-of-pocket expenses for repairs or replacements.”

The director added that a shift towards third-party coverage will lower insurers' income, resulting in lower corporate tax contributions. He also urged the government to ensure a tax regime which creates an enabling environment for business growth.

“A reduction in insurers' income will prompt downsizing the workforce, subsequently reducing employee tax revenues to the government,” said Gichuki.