State defends tax regime as firms mull Kenya exit

The taxman has strongly defended the government’s position on taxes, saying the levies imposed on businesses are not to blame for the high cost of production.

While manufacturers have blamed the Kenya Kwanza administration, even voicing their preference for Uganda and Tanzania as more favourable investment destinations, the Kenya Revenue Authority (KRA) insists that the industry already has the necessary incentives to spur production.

Kenya Revenue Authority (KRA) Deputy Commissioner Policy and Tax Advisory Maurice Oray noted that agricultural produce, for instance, is exempt from the VAT Act.

“That is the kind of incentive we give. Could it be that the problem is somewhere else and not on taxes?” he posed.

He spoke during a recent panel discussion on the sidelines of the recent launch of the Kenya Association of Manufacturers (KAM) Manufacturing Priority Agenda 2025.

Mr Oray said even if Kenyan manufacturers imported their raw materials, which are charged VAT at the border, then they should be selling the end products to those markets as well.

“We are getting raw materials even from neighbouring countries, and we are adding value, so how come you are still complaining?” he posed.

“A lot has been said, but from a tax administration point of view, taxes should not harm businesses. Taxes rely on the success of businesses. If there is a tax policy that hampers business, then we need to have a discussion.”

Mr Oray blamed manufacturers for contributing to the stays of applications of the Common External Tariffs (CET) levied across the East African Community (EAC) as a way of levelling the playing field for intra-EAC trade.

“All stays that we have come from the Kenya Association of Manufacturers. If there is a problem with manufacturers on stays, then probably there is something that is not well aligned,” he said, adding that there could be other underlying costs affecting the end cost of products.

However, Bidco Africa Chairman Vimal Shah, while calling for the removal of all taxes and levies related to raw materials, noted that Kenya’s tax system seems to favour traders more than manufacturers.

Mr Shah said the tax regime has multiple government agencies collecting fees whose value cannot be substantiated in the sectors they operate.

He said while the target of both the government and manufacturers is to be globally competitive, taxes and levies have been piled across the whole agricultural value chain. 

“There are 15 or 17 licences that you need, and all that is required of you is to pay and get them. It is just a paper to say I paid the fee. These bodies are not adding any value,” said Mr Shah.

Mr. Shah, speaking on the challenges facing the edible oils industry, highlighted that every farmer and transporter is required to pay a registration fee to the Nuts and Oil Crops Directorate.

“We are making our raw materials more expensive than what we could import. For example, milk from Uganda costs half the price of Kenyan milk, yet our milk is of the same quality. The same goes for eggs—Ugandan eggs are significantly cheaper,” he noted.

However, Mr. Shah also pointed out that the use of “stays” is common across the East African Community (EAC) markets.

“All stays in Kenya were imposed by the government, not the Kenya Association of Manufacturers (KAM). These measures have only served to hamper the industry,” he said.

“Stays of application” refer to the suspension of Common External Tariffs (CETs) on certain products to protect domestic markets. Experts have cited these stays as a major reason intra-EAC trade remains below 15 per cent.

“We’re not selling finished products. We’re trading mostly in raw materials,” added Industry Principal Secretary Juma Mukhwana, who defended the taxes as necessary for economic development.

He cited investments in rail and road infrastructure as key examples, noting that such developments enhance Kenya’s industrial competitiveness and are funded through taxes.

“Sometimes we focus only on the cost of doing business, yet we want reliable railway and road networks—these require funding. So, the government must work in partnership with the private sector. As we expand our infrastructure, someone has to foot the bill, and unfortunately, that includes businesses,” the PS said.

The Manufacturing Priority Agenda 2025 details how these taxes have been extended to the county level. It lists a wide array of county-imposed levies and fees, including showroom and trade branding charges, paint removal for signage fees for branded distributor trucks, and single business permits.

KAM noted that legislative steps have been taken to address these challenges. The County Licensing (Uniform Procedures) Act, 2024, signed into law by the President on June 28, 2024, aims to streamline county licensing.

“The Act establishes standard and uniform procedures for licensing across county governments,” stated KAM. “It will go a long way in ensuring consistency and fairness in the imposition of county-level fees and levies.”

Additionally, the Government-Owned Enterprises Bill, 2024, seeks to improve the governance, control, performance, and ownership of state corporations and entities where the government holds a majority stake.

If enacted, KAM explains, the bill would significantly reduce overlapping roles that drive up the cost of compliance for businesses.

“These reforms are essential to ensuring that state corporations are efficient and do not burden taxpayers or businesses with unnecessary regulatory costs,” KAM emphasised.

Dr Steve Makambi, from Kenyatta University’s Department of Econometrics and Statistics, argued that the real issue is not taxation itself but its punitive nature and the sheer number of regulatory agencies involved.

“The problem is the approach, not the principle of taxation. It’s the harsh enforcement and the many pseudo-government agencies that create challenges,” he said.

He cited the tea sector, which reportedly faces 15 different levies, and the tourism sector, which is subject to 31.

“We don’t even know some of these bodies that are taxing us,” he remarked.

Bidco’s Mr Shah suggested that while taxes are necessary, the structure needs reform. He proposed that more weight be placed on taxing finished products through VAT, rather than raw materials.

“We could introduce tax exemptions or reduced levies for anything manufactured locally using Kenyan agricultural products,” he recommended.