Excessive taxation hurting businesses, economy

Wednesday, January 29th, 2020 00:00 |
Economic growth. Photo/Courtesy

Kenyans are experiencing tough economic times. Businesses are struggling to stay afloat and the job market shrinks by the day.

Entrepreneurship and starting businesses is becoming a pipe dream for a lot of young people.

This is why the government needs to wake up to these realities and start implementing urgent measures to salvage the situation.

Last week, the Stanbic Bank East Africa discussed its Purchasing Managers’ Index (PMI) on Manufacturing, saying most manufacturers are opting to leave Kenya for better alternatives offered by other countries in the region; their main challenge an unpredictable environment and increasingly unplanned taxation.

The high debt situation in which we find ourselves as a country is binding us into a cycle where we inevitably have to come up with new taxes to get revenue, which is becoming untenable for many businesses.

It is difficult for meaningful economic gains to be realised when the cost of doing business keeps increasing and by far, outweighs the measures being employed to make them productive.

Those investing in the manufacturing sector right now are doing so against all odds to ensure they increase their economic contribution to nation-building and job creation.

Most of the sectors within manufacturing need to bring in raw material from outside the country to come up with the end product for both the local market and exports.

In recent years, the cost of bringing in these raw materials continues to rise, increasing the manufacturing cost and related production costs, resulting in an end product that is expensive for both local, regional and global markets.

The Finance Act assented to by the President on November 7, 2019 took measures to reduce the cost of raw material imports by providing lower rates of Import Declaration Fee (IDF) and Railway Development Levy (RDL) at 1.5 per cent. 

The major benefit that was to be realised through these new adjustments was to effectively lower the cost of bringing in raw material, making local goods competitive against imported goods and counterfeits as well as increasing local products’ competitiveness regionally and globally.

But despite these changes being made in the budget, they have not been effected by the relevant institutions and manufacturers continue to pay high costs for their inputs.

It seems the process is stuck somewhere between different government agencies, making it difficult to implement the directives.

To add to these fees, KenTrade has now introduced a new service fee to all its users which was unplanned for and increases the cost of doing business.

There is need to fix the issue of coordination in public service delivery by government agencies, because a lack of synergy ends up becoming a costly affair for citizens.

When important processes for business such as these stall, it appears as though these departments and agencies are not reading from the same page and are working at cross-purposes.

Taxes are by far the biggest absorber of wealth in this country for businesses and individuals.

Taxation should be a tool for progress, but in our situation, it seems to be aggravating the prevailing economic slow-down. Goods that are expensive to produce, will be expensive on the retail end.

The customer will be forced to pay more, and eventually, they will decrease the quantities they can purchase.

The intention behind the lower rates of IDF and RDL was a progressive one and was done in the spirit of revitalising the sector’s productivity towards increasing job creation and boosting exports.

But good policies are only good when executed effectively. Otherwise, they remain nicely written papers in government archives.

The budget for the next fiscal year is will be be read in the next few months, and it will be disappointing if by then, recommendations made from the past budget have not been actualised.

The government needs to urgently remedy this situation to help turn around the trajectory of our economy.

—The writer is the CEO of Kenya Association of [email protected]

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