By Anup Bid
Taxation is a critical function in building sustainable and progressive economies. To fully deliver on this function, tax policies have to articulate responsible and tangible shared values to all stakeholders, ensuring a conducive and structured transition towards achieving the desired objectives.
Industrialization faces various hurdles, one being the whims of the global markets competitiveness, which require us to support local manufacturers by creating a conducive economic environment to meet local, regional and international demands. Nurturing tax policies, lowering cost of doing business, and providing enabling environment will enable manufacturers to compete with the ever-challenging regional and global markets squarely. Further it will provide the opportunity for our goods to access diverse markets. Enhanced local productivity will create added employment resulting in increased circulation of money in the economy and thus a more equitable economy.
Indeed, many tax policies in the country are created with this premise, which is understood and shared by all stakeholders. The challenge manifests in their execution process. Take an example of the proposed Excise Goods Management System (EGMS). The idea behind installing this system was to aid in the fight against counterfeits and the illicit trade, by putting a stamp on genuine locally manufactured products thus making them traceable and identifiable.
This need was highlighted by all stakeholders, jointly by the Industry and Kenya Revenue Authority (KRA), especially in light of the growing complexity of illicit trade networks and their infiltration into diverse markets. However, the challenges related to the physical implementation, the exorbitant cost involved in the implementation and various overhead requirements for effective operation of the system emerged!
It is important to reiterate that local manufacturers appreciate that the tax stamp is meant to track production, safeguard excise revenue and authenticate excisable products being sold in the market. The current impasse is as a result of the additional costs, which will impact on the capital and operating expenditures for the manufacturers and will inadvertently be passed on to the consumers. Needless to say that the manufacturing sector’s global competitiveness will be adversely affected.
Just to highlight, some complications on cost were that, for instance, it would be far too expensive to justify the cost of the ink and stamps that were required as part of installing the system, and this additional cost will have adverse effects on the local manufacturers’ sales volumes leading to quantum losses for these companies. Subsequently, it would become prohibitively expensive for citizens to afford basic goods under this system, adding to the high inflationary cost of living in a very price sensitive economy.
Additionally, a comparison with other countries such as Morocco who have implemented the system shows that Kenyan manufacturers will be required to pay way above what other countries pay for the stamp and ink. On compatibility, some companies will have to bear huge constraints in terms of reconfiguring their physical spaces by removing existing machines to accommodate the EGMS equipment.
Being an integral component of doing business, taxation should not increase the cost of doing business directly neither should it be embedded in added excise tax! A thorough feasibility study, incorporating all stakeholders, needs to be undertaken prior to systems implementation in order to conclude whether the proposed system is compatible, cost-effective and true to the set objectives.
The pause in installing this system as directed by the Parliament gives all stakeholders opportunity to reflect and collectively revert with comprehensive solutions that will ensure achievement of the intended set objectives as outlined above and that, all actions are in tandem with growing the manufacturing sector to contribute 15 percent to the GDP as per the Big 4 Agenda.
The writer is the Chairman of the Beverage Subsector and Central Kenya Chapter at KAM. He can be reached on email@example.com.