Manufacturers have their way as MPs drop disputed levies

Youth engaged police in running battles during the anti-tax protests in Nairobi CBD on June 20, 2024. [Denish Ochieng, Standard]

Kenyan manufacturers have won big as Parliament’s Finance and National Planning Committee strikes out several proposed levies from the Finance Bill 2024. 

In its report tabled yesterday in Parliament, the Committee conceded to nearly all the objections raised by manufacturers who had criticised the Bill as detrimental to the local manufacturing sector. 

This includes the removal of the proposed Eco Levy on diapers, tyres for motorcycles, bicycles, wheelchairs and Tuk Tuks. The Parliamentary committee also agreed to reduce the Eco Levy rate for certain finished goods. 

“The purpose of the Eco Levy is to help redress environmental damage and pollution caused by import of certain finished products into Kenya,” said the committee in its report. 

“The levy should only be applied on imported finished products to protect local manufacturers who are currently subjected to the Extended Producer Responsibility. In line with International best practices of the “polluter pays principle,” it is critical to ensure that the manufacturer of offending items contributes to financing the safe disposal of the products.” 

The National Treasury is however yet to produce a list of finished imported goods that will be exempt from the Eco Levy, meaning that Kenyan consumers could be in for a surprise once the tax comes into effect. 

There has also been concern that the imposition of the levy on some finished imported goods will still hurt Kenyan consumers since the country imports the majority of its goods and there is insufficient capacity for local industries to plug the deficit.  

Data from the Kenya National Bureau of Statistics indicates that Kenya’s imports stood at Sh906 billion in 2023. Top among commodities in the country's high import bill includes petroleum products, plastics, telecommunication equipment among others.

The Kenya Association of Manufacturers (KAM) last month cautioned that introduction of the Eco Levy on local industries would amount to double taxation and lead to an increase in the cost of doing business and the price that consumers pay for finished goods.   

“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,” said KAM in its submissions to Parliament. 

MPs also conceded to proposals to slap the Export and Investment Promotion Levy on articles of leather, imported footwear, denatured ethyl alcohol, ceramic sinks, and wash basins, amongst other products that come into the country, in a bid to shield the local manufacturing industry from unfair competition. 

The imposition of VAT on several manufactured goods including bread, diapers and sanitary towels has also been struck out following public outcry. Parliament also removed a proposal to slap 25 per cent excise duty on vegetable oils, which KAM had cautioned would drive up the cost of cooking oil by up to 80 per cent.

The Finance committee also handed manufacturers several concessions in their perennial tussle with the Kenya Revenue Authority (KRA).  

This includes an extension of the deadline for remitting excise duty by manufacturers of alcoholic beverages from 24 hours to five working days.

Manufacturers had protested that the one-day moratorium by KRA had led to cash flow challenges particularly among small players.

Another major concession won by manufacturers is a provision to offset the costs of their raw materials that is subject to excise duty. 

Treasury had sought to remove this provision but manufacturers protested that removing it would increase the cost of raw materials and have a knock-on effect on the price paid by consumers.