Wakiaga: Spare Kenyans pain of inflation adjustment
In less than a week, the price of some goods is set to increase, as Kenya Revenue (KRA) moves to implement inflation adjustment on specific rates of excise duty, beginning 1st of October.
Some of these products include chocolate, bottled water, fruit juice, alcohol, and cigarettes, among others.
Inflation adjustment on specific rates of excisable goods was introduced by the Excise Tax Act 2015. It empowers KRA’s Commissioner-General to adjust specific rates based on the previous year’s average inflation rate.
At a time when Kenyans are struggling to make ends meet and businesses continue grappling with shocks arising from the pandemic, the proposed inflation adjustment could not have come at a worse period.
Let us take an example of the manufacturing sector, whose contribution to the GDP stood at 7.6 % in 2020, against the targeted 15% under the current Government’s Big Four Agenda. The proposed annual inflation adjustment will further aggravate this dire situation.
Additionally, the pandemic continues to have long-running ramifications on economies, businesses, and households. According to the Kenya National Bureau of Statistics (KNBS) Economic Survey 2021, activities in the manufacturing sector slowed down last year, mainly due to the impact of COVID-19. The sector’s real Gross Value Added (GVA) is estimated to have contracted by 0.1 per cent in 2020, compared to a 2.5 per cent growth in 2019.
Another reason why inflation adjustment needs to be halted is that the main markets for excisable goods (aviation, hospitality and tourism) were the most adversely impacted by the pandemic, and may take a while to recover. From the Economic Survey 2021, air transport and accommodation, and food services contracted by -52.7% and -47.7%, respectively in 2020. This is attributed to measures put in place to mitigate the spread of the virus, which led to a sharp decline in excise tax revenue. KSh 10.9 billion was collected on May 2020, compared to 19.9 Billion in May 2019. As such, an increase in excise tax revenue can only be achieved if the hospitality and aviation industries fully recover.
Over the years, the annual inflation adjustment has not necessarily yielded increased tax revenues. For instance, excise tax payments for cigarettes declined by 12% in 2020 despite the implementation of the 4.94% annual inflation adjustment. This proves that increasing excise tax increase has reached its limit, and can no longer yield additional revenue for the government.
Tax policies that make locally made excisable goods a lot more expensive than imports open up room for illicit trade to thrive. Consumers will be forced to opt for cheaper products, which may be illicit or counterfeits. Illicit trade had been prevalent for cigarettes and alcoholic beverages, even before the pre-pandemic period. For example, independent research conducted in July 2020, indicates that approximately 11.4% (600 million sticks) of cigarettes sold in Kenya are illicit. This translates to an annual revenue loss of about Ksh. 2.2 billion. Another 2018 study by World Health Organization (WHO) revealed that an estimated 44% of alcoholic beverages consumed in Kenya are illicit and the government loses an estimated Ksh. 78 billion.
The annual inflation adjustment undermines the viability of both existing and future investments. Annual inflation adjustment will also discourage potential investors from venturing into the excisable goods segment of manufacturing, because of the numerous tax obligations. This is an undesired outcome because Kenya is a capital deficient economy requiring both domestic and foreign investments.
The inflation adjustment is in effect, inflationary. The rate of inflation increased from 6.44% in July 2021 to 6.57% in August 2021. This was mainly driven by increased prices of food and non-alcoholic beverages (10.67%); transport (7.93%); and housing, water, electricity, gas, and other fuels (5.07%). All these will be adversely impacted by the inflation adjustment of the affected goods. As such the prices of goods can only be expected to further increase. Pump prices have already reached historically high levels, with a large portion constituting taxes and levies, to the detriment of manufacturing and the economic well-being of Kenyans.
Inflation adjustment on specific rates of duty shall frustrate efforts towards speedy recovery and resilience of the affected manufacturers. It will also work against the intended post-COVID-19 economic recovery. We, therefore, call for a moratorium on the implementation of the inflation adjustment.
The writer is the CEO of Kenya Association of Manufacturers and the Global Compact Network Kenya Board Chair.
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Nine steel manufacturers slapped with record Sh338.8M fine for market distortion
The Competition Authority of Kenya has slapped nine steel manufacturers with a record Sh338.8 million fine for market distortion and price collusion.
According to the competition watchdog, the nine companies have been penalised for artificially inflating the prices of steel products.
The companies and their fines include Corrugated Steel Ltd (Sh86.9 million), Tononoka Rolling Mills Ltd (Sh62.7 million), Devki Steel Mills Ltd (Sh46.3 million), Doshi and Hardware Ltd (Sh41.6 million), Jumbo Steel Mills (Sh33.1 million) and Accurate Steel Mills Ltd (Sh26.8 million).
Others are Nail and Steel Products Ltd (Sh22.8 million), Brollo Kenya (Sh9.4 million) and Blue Nile Wire Products Ltd (Sh9.16 million).
CAK said investigations into the steel sector commenced in August 2020 when the Authority began collecting intelligence on pricing and output restriction.
The Authority's Acting DG Adano Wario said the penalties on the firms are proportional to the offense, specifically harming consumers who are grappling with the high cost of building materials in the country.
"Cartels are conceived, executed and enforced by businesses to serve their commercial interests and to the economic harm of consumers," Wario said.
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Kamau Thugge officially assumes office as 10th governor of the CBK
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Thugge takes over from former governor Patrick Njoroge, who has completed two terms, each lasting four years. With a wealth of experience from his distinguished career in international and Kenyan public service, Thugge has made significant contributions to shaping economic policies and initiatives.
Having worked at the International Monetary Fund (IMF) and held various senior roles in Kenya's National Treasury, Thugge brings valuable expertise to his new position.
Earlier today, Patrick Njoroge handed over the reins to Kamau Thugge.
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African Business Council calls for 40% continental procurement law
The African Business Council is advocating to have 40 percent of all procurements by the 55 African countries be allocated to the African Private sector saying it's not possible that what is available on African soil can be acquired from overseas if the dream of industrialization is to be realized.
Speaking in Midrand, South Africa while addressing a two-day workshop on Accelerating the African Continental Free Trade Area and the significance of the Pan-African Parliament, the President of the African Business Council Dr Amany Asfour said that already the African private sector is conducting a mapping exercise on resources existing on the continent and how to add value to them because collectively all resources in the world are available within.
She said the implementation of the African Continental Free Trade Area-AfCFTA depends on the role of the African private sector which can not achieve the dream on its own, saying legislation role is critical. “For the private sector to thrive we need an enabling environment, an investment climate and legislation for better procurement for the African private sector”
Asfour underscored the need to have incentives for African investors rather than giving to multinational companies that dot the continent, urging the Pan-African Parliament-PAP to support the private sector.
She said PAP could support the private sector by pushing for legislation in domestic Parliaments that will make it mandatory to have 40 percent of all government procurement given to the African private sector.
“It is not possible that what is on the African soil can be brought from outside Africa, that is why we need a law on 40% procurement,” she said.
Asfour added that even as Africa conducts mapping exercises of its resources, mechanisms and strategies must be quickly put in place to address the issue of value addition of African resources given that the continent has nearly all resources of the world.
She gave an example of DR Congo and Zambia as countries in a strategic place to provide a solution for batteries for electric vehicles whose demand by 2030 will have hit 200M, instead of having developed countries that get resources of lithium, and copper and then produce them outside the continent.
Asfour reminded the continental parliament that the founding vision of a competitive, borderless innovative Africa for Trade and Industrialization must be realized because AfCFTA without industrialization and investment is a dream.
For instance, she cited a lack of investment in health care which is draining the continent of both manpower and resources.
“According to WHO 80% of Africans are dying from cancer compared to 24% from Western countries because we don’t invest in the health sector forcing many to flock to India for treatment while we can invest in healthcare”
In order for Africa to produce high-quality and competitive products globally, the African business council has crafted a business strategy based on three pillars of private sector strengthening that includes SMEs, women and youth, policy advocacy that will serve as incentives to the private sector and finally product development which aims at having a solid product that can trade amongst Africans and how to ensure free movement of goods and services.
On his part, the PAP President Chief Fortune Charumbira said that by actualizing the African Continental free trade area, Africa’s Direct Foreign Investments-FDI could increase by 111% - 159% which could help African companies join regional and global value chains which are lacking at the moment.
Charumbira called AfCFTA a panacea to the continent’s economic and unemployment predicament because if realized, inflow FDIs would bring jobs and expertise, build local capacity and forge connection connections resulting in higher pay, better quality jobs with women getting the biggest wage gain.
“Wages could rise by 11.2% for women and 9.2% for men by 2035 albeit with regional variation depending on the industry that expands the most in a specific country,” he said.
He said in the event integration deepens, Africa’s exports to the rest of the world would go up by 32% by 2035 and intra-African exports would grow by 109% led by manufacturing.
Director of Trade in Goods and Competition Mohamed Ali who addressed the gathering virtually lauded the continental legislature for its support for the implementation of the AfCFTA stating that one of its success stories is the establishment of Pan-African Payment and Settlement Systems (PAPSS).
“We are losing a lot of hard currency while travelling amongst ourselves. We are setting up a PAPSS to allow traders to transact in local currencies implying cheaper access to inputs and access to products will be easier”
Africa Continental Free Trade Area entered into force on May 30 2019 after 46 member states ratified the protocol in a record two months.
May 25, 2023
Safaricom PLC reports 22.2% profit decline in FY ended March 2023
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The company's PAT closed at KES 52.48 billion, a drop from KES 67.49 billion in the same period last year.
According to Dilip Pal, Safaricom's CFO, service revenue for the year ended March 2023 was KES 297.2 billion, reflecting a 5.72% year-on-year increase.
The company recently acquired a mobile money services license in Ethiopia for $150 million, signalling its entry into the Ethiopian market.
"We're in final stages of discussions with IFC on financing both debt & equity. Even if IFC comes on board, we intend to remain majority shareholders. Funding as at close of FY23 towards Ethiopia from shareholders is $1.24 bln & from Safaricom PLC is $690 mln," said Dilip Pal, Safaricom CFO.
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