Job cuts, closures loom as industry warns over new proposed taxes

Job seekers on a long queue waiting for a job interview. [File, Standard] The Finance Bill 2024 has received intense criticism from ordinary Kenyans, manufacturers and expert groups due to its proposals to enhance and introduce taxation measures amid warnings it would make life difficult for Kenyans, lead to business closures or downgrades as well as job losses. Some businesses are even threatening to migrate from Kenya impacting on the country's efforts to retain and attract Foreign Direct Investment (FDI). East African Breweries Ltd (EABL), one of the biggest taxpayers in the country, for instance, has warned that it may be forced to import finished products rather than manufacture them locally if the Bill is passed by Parliament in its current form. Proposals in the Bill, if enacted, will see excise duty of spirits with alcoholic strength exceeding six per cent increase from the current Sh335.30 to Sh16 per centilitre of pure alcohol effective September 1, this year. According to EABL, this will see a 250-millilitre bottle of Chrome Vodka, for instance, increase by 70 per cent from the current Sh300 to Sh600. "Our products here will be competitive. They will be more expensive, which means that it will be cheaper for an alcoholic player in the country to import as opposed to manufacturing locally. That has an impact on jobs. We are talking about over 1,000 jobs across the industry, and that will mean that you're incentivising importation as opposed to local value addition," EABL's Corporate Relations Director Eric Kiniti warned. While the government says the aim is to encourage the consumption of beers to address addiction problem among the youth, it has ironically also proposed to increase tax on select beers with EABL saying Guinness and Senator Black are among those that would see their prices go up if the current rate of Sh134 per litre is changed to Sh22.50 per centilitre of pure alcohol as proposed in the Bill. The proposed tax will not only be imposed on both opaque and non-opaque beer but also cider, perry, mead and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of alcoholic strength not exceeding six per cent. Experts warn that alcohol users are likely to resort to illicit brews as a result. Coca Cola, the global soft drinks behemoth, is also protesting the proposed tax increase on plastics, saying it will drive up prices of its products. It is also warning of job losses if proposed change to the Excise Duty Act will subject locally made plastics to the tax is enacted. Currently, only imported plastics are subject to 10 per cent excise duty but the Finance Bill 2024 is proposing to delete the word "imported" meaning manufacturers will have to pay tax on all plastics used for packaging. An illustration of job cut by scissors. [Getty Images] "By imposing excise duty on locally produced plastics, this will increase the cost of production and thus increase the price of products requiring plastic packaging," its Director of Public Affairs, Communication and Sustainability John Mwendwa told the National Assembly Finance and National Planning Committee, adding it will also amount to double taxation. Edible oils manufacturers have warned of steep price increases if a proposal in the Bill to enhance excise duty by 25 per cent is passed without amendment. "The cost of 10kg carton cooking fat will increase by Sh1,098 to retail at Sh3,230 from the current Sh2,132, the 400g bread cost will increase from Sh70 to Sh80, the long bars soaps from Sh180 to Sh270, Chapati from Sh15 to Sh25 and mandazi from Sh20 to Sh30 as they are a byproduct of the edible oils," Edible Oil Sub-Sector Chairperson Fathi Hayel Saeed told the National Assembly Trade, Industry and Cooperatives committee. Safaricom and the Kenya Bankers Association (KBA) have also rejected proposals to increase excise duty on internet data and mobile money transfer services provided by banks and cellular phone services from 15per cent to 20per cent. This is in addition to a 16 per cent Value Added Tax (VAT) on banking services. If enacted, this would affect issuing of credit and debit cards; telegraphic money transfer services; foreign exchange transactions, including the supply of foreign drafts and international money orders; cheque handling, processing, clearing and settlement including special clearance or cancellation of cheques; issuance of securities for money, including bills of exchange, promissory notes, money and postal orders; the assignment of a debt for consideration; and the provision of financial services on behalf of another on a commission basis. But in submissions to the National Assembly Finance and Planning Committee, KBA warned this would create a barrier to financial inclusion by making basic services unaffordable, a situation that could see Kenyans resort to mattress banking. "The imposition of 16 per cent VAT on financial services will create a barrier to financial inclusion by making basic services unaffordable," acting KBA CEO Raimond Malonje said adding that goes against international best practice where financial transactions are VAT exempt across the globe," KBA added. In its analysis, KPMG also warns that while the above proposals are intended to expand the tax base, if adopted, they will increase the cost of the various financial and insurance services, which might limit access of these services to Kenyans. Tax-hailing firms, Bolt and Uber, are also threatening to quit the Kenyan market if the Finance Bill 2024 is passed in its current form. The Bill proposes to repeal the provisions on Digital Service Tax (DST) and introduce a tax known as significant economic presence tax at the rate of 30 per cent of the deemed taxable profit. The tax will be payable by a non-resident person whose income from the provision of services is derived from or accrued in Kenya through a business carried on over a digital marketplace. "Non-resident companies currently pay a 16 per cent Value Added Tax (VAT) with no opportunity to deduct input VAT. They also pay 1.5 a per cent DST, giving an effective tax rate of 17.5 per cent on gross turnover, not profit," Bolt's Public Policy Manager George Abasy told the parliamentary committee. The Bill proposes to redefine a digital marketplace to mean an online or electronic platform which enables a person to sell or provide goods, property or services and any other service that is not exempt from tax under the Income Tax Act. Additionally, the Bill proposes to include the definition of "platform" to mean a digital platform or website that facilitates the exchange of a short-term engagement, freelance or provision of a service, between a service provider, who is an independent contractor or freelancer, and a client or customer.

Job cuts, closures loom as industry warns over new proposed taxes

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