Manufacturers term 6.3pc inflation rate adjustment unsustainable

Manufacturers and traders have appealed to Kenya Revenue Authority (KRA) to reconsider the planned effecting of the 6.3pc inflation rate adjustment on excise duty from October 1, 2022.

Manufacturers say the move is unattainable in the current operating environment where input costs, fuel prices and logistics cost have skyrocketed coupled by a weak shilling which has depreciated by 5.53pc so far this year.

During Wednesday virtual engagement with KRA, the Kenya Manufacturers Association (KAM) faulted the revenue authority for the upward review of the inflation rate adjustment even before the conclusion of last year’s adjustment of the inflation rate of excise duty on excisable goods by 4.97%.

“The Court granted temporary orders that allowed the “status quo” to remain. The case is yet to be heard and determined. KRA continues to disregard the High Court orders issued on 19th November 2021 where the Court gave interim orders of status quo,“ said Dr Simon Githuk, KAM Research and Fiscal Policy Manager.

KAM adds that the annual inflation adjustment is not sustainable and does not support government policies to promote manufacturing adding that the increment will also have adverse effects on employment as businesses cut down on cost.

The draft policy seeks to eliminate the unpredictability nature of tax policies which is seen as a hindrance to the country’s attractiveness to investors.

Under the excise duty act 2015 and miscellaneous fees and levies act 2016, KRA is required to annual adjust the specific rates of excise duty and export levy to take into account the rate of inflation.

The prices of some goods such as beer, bottled water, and juice might increase next month due to annual inflation tax adjustment of up to 6.3pc.

Its implementation will see the price of a bottled water go up to Ksh 7.02 from Ksh 6.6 per litre while juice sellers will part with Ksh 14.14 for every 12 litres.

KRA will now demand Ksh 142 for every two beers up from Ksh 134. The price increase for the affected products will reduce affordability forcing consumers to substitute with cheaper products, particularly illicit tax evaded goods.

Wanjiku Manyara General Manager of Petroleum Institute of East Africa (PIEA) says excise duty taxes on petroleum and petroleum products will be counteractive to Kenya’s post-covid economic recovery highlighting the need to promote investment growth, stimulate business recovery and spur local manufacturing and job creation.

  

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