Brace for higher prices with Finance Bill 2024

The Kenya Association of Manufacturers (KAM) has strongly criticized the Finance Bill 2024, arguing that the proposed tax measures will significantly harm the manufacturing sector. The industry lobby contends that recent policies have already shifted Kenya from being a leading exported to an importer of paper and steel products within the East African Community (EAC).

A primary concern for KAM is the Export Investment Promotion Levy (EIPL), imposed under the Miscellaneous Fees and Levies Act, which taxes raw materials used in manufacturing. KAM argues that this levy raises production costs, reducing the competitiveness of local industries in both domestic and export markets. This levy was first imposed in 2023 on materials such as kraft paper, steel billets, and cement clinkers, ostensibly to support local manufacturing.

However, KAM asserts that without proper data verification, the EIPL has had severe unintended consequences, including a 40 percent increase in construction costs.

Eco-levy on selected goods

The Finance Bill 2024 proposes expanding the EIPL to include raw materials for paper packaging, further exacerbating the issue.

Another contentious point is the proposed eco-levy on selected goods, which KAM argues will duplicate existing levies under the Extended Producer Responsibility Schemes.

This new levy is expected to increase the cost of plastic packaging materials, batteries, and hygiene products, thereby reversing efforts to establish a circular economy and a regional recycling hub. For instance, the price of bar soap, a household essential, could rise from Kes170 to Kes270 due to the combined effect of eco-lecy and other proposed taxes.

The proposed increase in the Import Declaration Fund (IDF) from 2.5 percent to 3 percent is another point of contention. KAM argues that this increase will raise the cost of raw materials and intermediate products, making local industries less competitive compared to imported finished goods.

“Imposing EIPL on raw materials without data verification does more harm than good. Indeed, KAM has analyzed, in detail, the impact of EIPL on the paper, steel, and cement sectors and has noted unparalleled negative unintended consequences in those sectors that are crucial to the economy. The cost of construction has since gone up by at least 40 percent due to this unwarranted policy action,” KAM statement signed by CEO Anthony Mwangi notes in part.

Additionally, the government’s proposal to remove the offset provision for excise duty costs on raw materials, combined with a new 10 percent excise duty on products, will lead to a huge price increase.

Read also: Finance Bill 2024 sparks industry outcry

Increase cost of production

For instance, KAM notes that the cost of a plastic basin could increase from Kes110 to approximately Kes200. Similarly, the proposed 25 percent excise duty on vegetable oils is expected to drastically increase the cost of cooking oil, a staple commodity, by up to 80 percent.

KAM notes that these tax measures will increase the cost of production, burdening consumers already struggling with high living costs and reducing disposable incomes.

According to the 2024 Economic Survey, Kenya’s manufacturing sector expanded by a slower rate of 2 percent in 2023 relative to 2.6 percent experienced in 2022.

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