Manufacturers, through their umbrella body, the Kenya Association of Manufacturers (KAM), have petitioned the government that will be elected on August 9 polls to do away with several taxes, that are deemed redundant.
In a 40-page manifesto for 2022 to 2027, KAM urged the next government to adopt a principle of taxing final goods, rather than taxing raw materials and intermediate goods.
“The Association, through this Manifesto, aims at contributing to the national conversation on the economic choices that will face any incoming government and proposes solutions that will benefit the sector and the
nation at large,” says KAM Board chairperson Mucai Kunyiha.
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KAM is also pushing for the implementation of a National Taxation Policy aimed at enhancing certainty and
predictability, reducing the number of taxes, reducing levels of taxation, reducing reliance on direct taxes, broadening the tax base, automating tax collection, increasing use of iTax, and introducing transitional clauses for new taxes.
They also want the government to adopt a principle of taxing final goods, rather than taxing raw materials and intermediate goods.
“Peter Diamond and James Mirrlees (1971), note that an optimal tax structure should not include the taxation of raw materials and intermediate goods, since this would prevent efficiency20. This has been demonstrated by other studies and co-opted as conventional practice. A review of taxation policy shows that Kenya is increasingly subjecting many raw materials and intermediate goods for taxation, thereby harming the export competitiveness of Kenya’s manufacturing firms,” said KAM in their manifesto.
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The manufacturers also want the next government to revert Investment Deduction Allowance to 100 percent from 150 percent to spur county industrial agenda.
The manufacturer’s body is also vouching for the removal of 16 percent Value Added Tax (VAT) on plant and machinery.
According to KAM, interest deductibility should be limited to be the greater of 30 percent of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) or 12 percent of assets or Ksh400 million. The deductibility limits should be applied to net interest, not gross interest. KAM also wants application of the deductibility limits only to entities with foreign borrowings
“Excess interest should be carried forward for up to five years,” says KAM.
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The government has also been urged to abolish double taxation at the county and national government levels for services including vehicle branding, cold storage as well as cess on agriculture and horticulture products.
The KAM Regulatory Audit 2020 identified double taxation in the following areas – transport vehicles branding charges, cold storage charges, cess on agricultural produce and charges on flower products (also charged by Horticulture Crop Directorate at the national level).
The government has also been urged to limit the use of excise taxes and levies only to goods that damage public health or the environment.
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“Although Kenya has made strides in manufacturing output, other economic sectors have grown faster than manufacturing, in the last one and half-decade. This has seen the manufacturing sector contribution to GDP shrink over the years – currently, contribution to GDP stands at 7.6%. In addition, the sector faces real challenges in the wake of COVID-19 pandemic, globalization and digitization. This calls for the country to be resolute in branding and positioning herself on the global map, as a serious industrial centre that drives the competitiveness of value-add goods,” says Kunyiha.
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