Cut tax on hides and skins by half

The row over exports of hides and skins centres around a tax that dealers say is punitive and unnecessarily harsh.

The 40 per cent tax chargeable on exports of hides and skins is calculated on the total weight of the consignment, rather than its export value.

When it was introduced, the Government’s explanation was that it was necessary to make exports expensive so as to protect the local tanning and leather industry. The idea was to encourage the livestock sector to invest in processes that can add value to by-products like hides and skins, before they are sold locally or exported out of the country.

This is a noble goal.

However, since the tax came into effect, there has been little evidence that the industry has gained from it.

In fact, the tanning and leather sector remains fairly rudimentary at best, a sad thing indeed, considering the advanced technology now available.

Shoe giant Bata, the only company with the ability to fully process the raw material, prefers to buy heavy hides, of which Kenya produces little.

At the same time, there is the issue of quality. Because much of this country’s hides and skins come from animals reared under difficult conditions by nomadic pastoralists in arid and semi-arid areas, the grade is usually low.

This means they must undergo treatment to make them suitable for the leather industry.

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This significantly increases the cost of the final product and makes it unattractive for companies like Bata that also have to compete against imported used shoes, for instance.

Four years ago, the Kenya Hides and Skins Association accused a local firm, with Pakistani connections, of engineering a ban on exports of raw hides and skins, forcing the then Livestock Minister John Munyao, to deny having issued such a ban.

He then formed a committee that included the association, traders and his ministry, supposedly to streamline the hides and skins sector. Soon after, nothing much was heard as the ministry went silent over the matter.

Meanwhile, a black market for hides and skins is thriving, with most of the raw material ending up in China, Pakistan, India and the Gulf states of the Middle East, the only countries with the capacity to treat the leather well enough for industrial use.

Even more ridiculous is that the finished leather products produced in these countries then find their way back to Kenya as cheap imports, undercutting the market being protected.

Is the 40 per cent tax on exports of hides and skins too punitive in its present form?

We think so, and go further to suggest that the tax be reduced to between 16 and 20 per cent, and charged on the value of the exports, rather than the weight of the goods.

The problem facing the industry has little to do with exports, and more to do with a limited local capacity to process the raw material. Until this changes, a ban is counterproductive.

Rather than ban export of raw hides and skins, the Government can encourage projects that use the Internet to create linkages between producers and buyers.

History the world over shows that punitive taxation on exports actually amount to a ban, depressing local prices for the targeted exports, eventually strangling the industry.

That appears to have already happened.

Livestock owners are now being offered the lowest prices ever, with some tannery owners even offering to buy the raw material at Sh10 per kilogramme.

The Government is better off encouraging investment in modern tanneries and better animal husbandry to produce higher quality raw material.

At the same time, the ministries of Livestock and Industry should work together, and draw up a realistic plan of incentives and so on to help producers add value to raw hides before selling them.