The Departmental Committee on Finance and National Planning has made a raft of recommendations on the Finance Bill, 2024, which if endorsed by the House will see local manufacturers protected from cheap imports, while preserving the existing jobs both in the formal and informal sector.
Among these is the recommendation that Eco Levy be applied only to imported finished products, thereby exempting locally manufactured products from the levy.
According to the Committee, promoting local assembly and manufacturing of goods will help boost Kenya’s manufacturing capacity, create jobs and save foreign exchange.
Among the Committee’s decisions towards this end, is the proposal to retain locally manufactured goods and imported raw materials under the zero-rate schedule of the Value Added Tax (VAT).
The Bill had proposed to impose VAT on a number of items which hither to, had been classified under the zero-rate category, a move the Committee observed would affect local firms, discourage further foreign direct investment and have a direct impact on job creation.
To cushion most critical consumption items in most households from higher prices, the Committee has proposed to zero-rate ordinary bread, unleavened bread, gluten bread, inputs and raw materials supplied to manufacturers of agricultural and pest control products, agricultural pest control products, transportation of sugarcane from farms to milling factories, supply of locally assembled and manufacture of mobile phones, among others.
The Committee has further proposed exempting several products from VAT, including the issuing of credit and debit cards, foreign exchange transactions, sanitary towels and diapers, and services of local film agents. If the report is adopted by the House, Eco Levy will also not apply to tyres for bicycles, tuktuks, wheelchairs and motorcycles.
The recommendations contained in the Report of the Committee to the House on the consideration of the Finance Bill, 2024 which was tabled last evening, were partly informed by concerns raised by stakeholders during the two-week public participation exercise conducted on the Bill.
During the exercise, Chairperson, Kuria Kimani stated that the Committee intended to create a policy that would shield local firms from adverse effects and to make the country remain competitive for business to prevent capital flight to the neighbouring countries.
He also noted that the lawmakers were keen to protect the existing jobs while creating new opportunities hence widening the tax base.
“ I want to assure stakeholders and Kenyans in general that the Finance Committee intends to convert the Finance Bill, 2024 from a tax legislation to a policy document which will not only help to protect local firms, but also create job opportunities while safeguarding the current jobs”, Kimani noted.
While reacting to the Bill’s proposal to standard rate the supply of locally assembled or manufactured mobile phones, law firm Bowmans argued that the proposal to retain the VAT zero-rate would encourage further growth in the local industry which is aligned to the government’s Bottom Up Economic Transformation Agenda (BETA) which includes growth in local manufacturing and job creation.
On their part, the Kenya Association of Manufacturing (KAM) who opposed the move to impose locally assembled manufactured mobile phones, noted that the current zero-rate status had encouraged local companies such as M-KOPA to invest in local assembly.
“In July 2023, the government enabled local assembly through VAT zero rating on locally assembled smartphones. This incentivized businesses to invest in local assembly, creating jobs and increasing tax contributions” KAM noted.
Other locally manufactured items the Committee has recommended for zero-rating are tea packaging material, micronutrients, foliar feeds and bio-stimulants, and bioethanol vapors stoves.
Locally manufactured or assembled motorcycles under the tariff heading 8711.60.00. will also be zero-rated if the House gives a nod to the Committee’s recommendations.
Also joining the list are steel billets- a form of raw material widely used in manufacturing, particularly in the steel industry is a crucial raw material.
The Committee in their report proposed to drop the Bill’s provision to impose 10 per cent customs value on billets. This move if approved by the House will be a shot in the arm for the steel industry and built environment industries.
Additionally, the Committee’s report has further proposed that the threshold for Value Added Tax (VAT) registration be increased from Kshs. 5 million to Kshs. 8 million. The net effect is that many small businesses will no longer need to register for VAT.
Meanwhile, the proposed deletion of the Motor-vehicle tax, which the Bill had proposed be imposed at the rate of 2.5 per cent based on the value of the car, will offer a welcome reprieve for the insurance industry.
During the public participation exercise, stakeholders who made submissions on the provision had noted that the proposed tax would result in adverse impact on the affordability of the comprehensive motor vehicle insurance policies, further scaling down the uptake of motor vehicle insurance.
The proposal to drop the imposition of excise duty on vegetable oils by the Committee if approved by the House, will also impact positively on the manufacturing sector.
Appearing before the Committee during public participation, players in the edible oils sector had decried that the proposed legislation to increase Excise Duty at 25% could see a sharp rise on the cost of production, a cost that would in turn be passed on to the consumer.
While the Committee noted that though the proposal was intended to allow local farmers to develop capacity for cultivation of inputs for local manufacture of edible oils such as sunflower, while discouraging players who have been importing nearly processed edible oils under the guise of crude palm oil, they acknowledged that proposed imposition of duty would further push the prices for vegetable oils higher, thus increasing the cost of food.
To spur the nascent aviation sector in the country the Committee has proposed the deletion of the proposed VAT on aircraft spare parts, noting that most airline operators offer maintenance and repair operations to several international and domestic airlines in Kenya and the region.
The legislators noted that a tax on aircraft spare parts would lead to a high cost of operation for airlines in Kenya, thus making the country uncompetitive as a regional hub.
While making these recommendations, the Committee underscored the need for the National Treasury to maintain a predictable tax regime in future Finance Bills, through the implementation of the National Tax Policy and by aligning the legislations with the Medium Term Revenue Strategy.
The Report can be found through the 🔗: http://www.parliament.go.ke/report-finance-and-national-planning-finance-bill-2024
