Manufacturers: IMF tax proposals will cripple economy

There is a looming price spike of basic commodities if the government goes on to implement the final phase of tax reforms endorsed by the International Monetary Fund (IMF), manufacturers have warned.

The reforms which were initiated in 2011 were met with a wave of attacks from consumer lobby groups with Consumer Federation of Kenya (COFEK) warning that the proposed reforms will lead to an upsurge in prices of the basic commodities.

The National Treasury is planning to conduct a deep analysis of Excise Duty and Value Added Tax (VAT) but manufacturers have voiced their concerns arguing that the planned introduction of inflation-indexed exercise tax and elimination of VAT exemptions on all petroleum products in August 2016.

Once the review is done, the Treasury will move to adjust exercise duty on select goods every six months from the next financial year, which starts in July, to reflect changes in the cost of living. Cabinet Secretary Henry Rotich disclosed this in a January 16 Letter of Intent when requesting for the one-year stand-by loan of Ksh63.09 billion ($688.3 million) approved on February 2 to cushion the country against unforeseen shocks to macroeconomic stability.

“We will submit to Parliament by end-June 2015 a proposal to revise exercise rates for selected products, and an automatic semi-annual inflation indexation of specific exercise taxes, prevent the erosion of exercise revenue in real terms,” Rotich said in the Letter of Intent to IMF managing director Christine Lagarde.

Some of the exercisable goods likely to be affected in the renewed push include soft drinks, alcoholic beverages, tobacco, fuel, motor vehicles, plastic bags and imported second hand computers. The CS has further committed to slap the standard 16% VAT on petroleum commodities, including Kerosene and cooking gas, at the end of the three-year transition period in August 2016.