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KISERO: Cost of farming, food to climb with new tax law

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We are staring at higher prices to farmers, less use of agro chemicals, and higher food prices. FILE PHOTO | NMG 

As a tax, value added tax (VAT) works better in a country with a large formal sector with established practices of good record keeping and where the level of tax compliance is high.

Kenya is the opposite. Here, the informal sector accounts for between 60 to 80 per cent of the economy. We also know that out of a working-age population, only 1.8 million are on formal wage employment. The majority are in the informal sector.

There is a second reason why implementation of VAT in our context is bound to be problematic. The threshold for registration under VAT is annual turnover of Sh 5 million. In other words, 90 per cent of private enterprises in this economy operate below the VAT threshold.

Accordingly, all VAT that they incur on their inputs and purchases sit on them as a ‘final tax’. They can’t charge VAT on their sales but must absorb VAT on their purchases. In other words, they must adjust prices whenever there is an increase of VAT.

If you are registered, you are able to offset the VAT you have paid to the amount you are due to pay the Kenya Revenue Authority (KRA).

What is my point? It is that before you levy VAT on a critical input in the economy –for instance- petroleum products or fertiliser or agrochemicals you must calculate the likely impact on the majority of the population.

In our context, where VAT is a final tax to a large swathe of enterprises in the private sector, any minor upward adjustment will ripple through the supply and value chains, causing havoc and exacting big changes in consumer prices.

Didn’t we all hear the Agro Chemical Association of Kenya protesting that the proposal to increase VAT on agro chemicals by 16 per cent was going to increase their costs by 50 per cent? The East Africa Farmers Federation also came out to protest, pointing out that their costs would go up by 40 per cent.

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Which brings me to the controversy over the introduction of VAT on petroleum products.

When the proposal to impose 16 per cent VAT on petroleum products came up, the MPs decided to kick the can down the road for two years. Clearly, our policymakers did not look at the picture.

Because petroleum products are a critical component in three areas of the economy – transportation, power, cooking and lighting, we should have given the idea of imposing VAT on it a little more thought.

Take the example of cement. Transporting clinker to the factory will now go up by eight per cent. Burning the clinker in the ovens will require power whose cost will go up by eight per cent of fuel cost adjustment. To ship the cement to customers- I have to incur eight per cent more cost on fuel. When the transporter- who will be an SME not registered under VAT- the cement to the building site, they also incur the extra eight per cent VAT.

The point here is this. An eight per cent increase on VAT on petrol does not mean that consumer prices will go by a mere eight per cent.

Because of the ripple effect, the increase in prices to the final consumer may go up by a massive 50 per cent because of this telescopic effect.

This is the point our policymakers missed when they sought to give the impression that bringing down VAT on fuel from 16 per cent to eight per cent was such a big concession.

Even as we were obsessed with VAT on petrol, a bigger crisis is looming in the important agriculture and food sector.

VAT on agrochemicals and pest control products was surreptitiously moved from zero rating to VAT exempt.

The upshot of that is that VAT on inputs can no longer be claimed as before.

The immediate reaction by the agrochemical industry was to apply VAT from July 18 which is the date of assent of the Finance Bill. The industry went further to warn farmers to expect to pay 50 per cent more on agro chemicals and pest control products.

We are staring at higher prices to farmers, less use of agro chemicals, and higher food prices. Farmers are not as influential as motorists when it comes to influencing policy.



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The pillars that will deliver trade dividends within EAC

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The pillars that will deliver trade dividends within EAC


East African Business Council (EABC), CEO Peter Muthuki. NMG PHOTO

Peter Mutuku Mathuki took over as the secretary-general of the six-nation East African Community (EAC) bloc on April 25, pledging to deliver a “stronger and more formidable” trading bloc at the end of his five-year term. Dr Mathuki (right) is not new to regional integration issues.

He served in the East African Legislative Assembly (EALA) for five years to 2017 before taking reins as chief executive of East African Business Council (EABC) — the regional business lobby for private sector — from October 2018 until his latest appointment. He spoke to Business Daily.

HOW HAS YOUR EXPERIENCE AT THE LEGISLATIVE ARM OF THE EAC AND LATER AS A CHAMPION OF PRIVATE SECTOR INTERESTS PREPARED YOU FOR YOUR NEW ROLE?

I have gained experience and a sound understanding of regional politics and its effects on regional integration, business and individual countries.

Having worked in different capacities under the umbrella of the EAC, I am well aware of the opportunities that are available for exploitation, as well as the challenges that the Community and individual partner States face.

I will use my experience, and valued partnerships that I have picked along the way to work towards creating a more integrated and stronger Community that is able to withstand the challenges to come.

ONE OF THE BIGGEST THREATS TO REGIONAL INTEGRATION IS ON-AND-OFF DISPUTES AMONG MEMBER STATES WHO SOMETIMES RESORT TO ERECTING TARIFF AND NON-TARIFF BARRIERS (NTBs). HOW ARE YOU GOING TO ADDRESS THIS CHALLENGE?

My preferred approach would be to prioritise the full operationalisation of the EAC Elimination of Non-Tariff Barriers (NTBs) Act, 2017 and the establishment and full operationalisation of the EAC Committee on

Trade Remedies to handle persistent trade disputes in the region. I will also focus on strengthening the capacity of the National and Regional Monitoring Committees on the resolution of NTBs to identify and resolve any imposed NTBs.

The removal of NTBs is expected to drive intra-regional trade to at least 30 percent in the short-term from the current 15 percent. My target is to have it grow to more than 50 percent by the end of my tenure.

WE HAVE LARGELY SEEN INDIVIDUAL MEMBER STATES ENGAGE TO RESOLVE DISPUTES BETWEEN THEM, WITH LITTLE INVOLVEMENT FROM THE EAC SECRETARIAT. HOW DO YOU PLAN TO HANDLE THIS?

My aim is to strengthen the Secretariat to better support Partner States in trade negotiations and in operationalising mechanisms to unlock disputes among themselves. The EAC Elimination of NTBs Act, 2017, shall facilitate the resolution of persistent NTB and force Partner States to refrain from imposing new ones.

The mechanisms to report and resolve NTBs, as stipulated in the NTBs Act 2017, include compensation where the Council (of Ministers) finds that the imposing Partner State caused unnecessary trade loss to the affected Partner States as shall be determined by the Committee on Trade Remedies. It is my goal that this Committee is established and empowered to deliver on its mandate.

My other key area of focus on this is to strengthen the available dialogue with Partner States through their established National Monitoring Committees and the Regional Monitoring Committee on the resolution of non-tariff barriers — where such exist — and other inconsistent laws that frustrate intraregional trade and investments.

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KENYA, BEING THE ONLY LOWER MIDDLE-INCOME COUNTRY IN THE BLOC, HAS RECENTLY FOUND ITSELF ISOLATED WHEN NEGOTIATING FOR INTERNATIONAL TRADE TREATIES WHERE ITS EXPORTS WERE FACING INCREASED TARIFFS IN ABSENCE OF A DEAL. CASE IN POINT WAS THE RECENT POST-BREXIT DEAL WITH THE UK AND BEFORE THAT IT WAS WITH THE EU BACK IN 2016. WHAT IS THE LONG-TERM SOLUTION TO THIS?

The EAC has an obligation to implement all the provisions of the EAC Treaty, its protocols as well as decisions and directives from the EAC policy organs.

In terms of the EPAs (economic partnership agreements), the EAC Summit has provided guidance whereby partner States that are ready to implement the agreement should go ahead and do so.

Therefore, it is expected that within the confines of the EAC Treaty, we have solutions to fast-movers like Kenya.

On a sustainable basis, however, all EAC economies will be assisted to grow to middle-income status through harmonised economic policies.

When each of the EAC partner States has something to sell to the new negotiated markets on a competitive basis, negotiation and implementation of trade preferences will be a very welcome idea to all the partner states.

WHAT PRACTICAL SOLUTIONS ARE YOU BRINGING ON BOARD TO UNLOCK THE LONG-STANDING STALEMATE AMONG EAC MEMBERS OVER THE COMMON EXTERNAL TARIFF (CET) FOR THE BLOC?

The finalisation and comprehensive review of the common external tariff and its uniform application in the bloc is long overdue. One of my priorities is to work with the Secretariat and partner States to fast-track the process by the end of this year. We will do this by ensuring that all member states focus on its conclusion for the purpose of promoting local industries and products in each of the partner states.

Despite a legal framework for standards in place, there have been cases where goods from one member State has been subjected to double testing and standardisation, and that means increased cost of doing business.

The Standardisation, Quality assurance, Metrology and Testing Act 2006 provides a framework for mutual recognition of test certificates and product certification marks. There is a need for capacity building in all the partner States to adopt and implement the mechanisms in place to enhance intra-EAC trade. It is also necessary to deliberately engage with the private sector, development partners and regulatory authorities, including national standards bodies. This will help to, among others, adopt risk-based standards development and conformity assessment to address the issues of unnecessary costs and burden to the traders in this area.

HOW DO YOU PLAN TO RESOLVE THE PERSISTENT RECURRENT BUDGET CHALLENGES at THE SECRETARIAT?

This is an issue which has affected the performance of the Secretariat in the past. Going forward, we plan to address this by encouraging partner States to make their remittances on time and coming up with sustainable solutions to those that may be facing challenges in doing the same. We shall also revisit the alternative financial mechanism once proposed so as to enable EAC to collect its own expenditure money from taxes on imported goods.

WHAT LEGACY WOULD YOU LIKE TO LEAVE BEHIND?

The focus of the EAC has been and continues to be regional integration among partner States. It is my goal that by the time my tenure draws to a close, we will have a stronger, more formidable Community that benefits all its citizens politically and from a business perspective.

The Community is also expanding, Somalia has applied to join the bloc and we are fast-tracking deliberations with the hope of reaching a conclusion later in the year. The DRC is also in the process to join the Community. Our plan is to work to create an EAC that becomes a global player of repute while meeting the needs of its citizens.

[email protected]

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Hotels target regional meetings to aid tourism sector recovery – KBC

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Kenya’s tourism and hospitality industry stakeholders are targeting the East Africa Community market for meetings, incentives, conferences and exhibitions (MICE) market to jumpstart the sector badly hit by COVID-19 pandemic.

The industry targets an estimated 29 million middle class people in the region for MICE which has been clamped down as a result of social distancing measures.

Kenya Coast Tourism Working Group Chairman Hasnain Noorani said players in the sector are working on a new pricing model as existing packages seen as too expensive for the target group which forms 22.6% of the region’s employed population according to a recent report by the African Development Bank (AfDB).

We are working together with players in the local tourism and hospitality industry to develop offers that will attract regional and domestic tourists as well, as we try to help the sector recover,” said Noorani.

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Noorani who also doubles as Managing Director for PrideInn Hotels said the tourism industry is confident the strategy will reap benefits before tourists from the international markets begin to arrive when Corona virus pandemic subsides globally.

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At PrideInn hotels for instant, we are having continuous product innovation, favorable pricing for the domestic market products, digitization of the MICE sector and gaining the trust of travelers through prioritizing their health and campaigns to re-assure the world that Kenya is safe,” Hasnain stated.

As with the majority of COVID-19-related adaptations, it remains to be seen whether changes in the MICE segment will remain once the health threat has subsided.

A swift pivot to online platforms can virtually bridge some of the interactive gaps caused by restrictions on mass congregations, and should therefore help to soften the blow of COVID-19 on the MICE segment,” said Hasnain.

Amid global travel restrictions, social-distancing protocols and prohibitions on mass gatherings, the world’s meetings, incentives, conferences and exhibitions (MICE) segment has been forced to adapt to the pandemic, with some events shifting online and others being deferred.

Before the outbreak of the virus and the subsequent introduction of travel restrictions and social-distancing guidelines the MICE segment presented a promising growth avenue for emerging markets seeking to diversify their tourism offering.

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Kenyans abroad sent home Sh32bn in April – CBK

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NAIROBI, Kenya, May 18- Kenyans living abroad sent home Sh32 billion (USD 299.3 million) in April 2021, a new data show.

Data by the Central Bank of Kenya reveals that the inflows represent a 43.7 percent increase from remittance sent in April 2020 and 2.9 percent rise in March 2021.

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“Remittance inflows increased to USD 299.3 million in April 2021, from USD 208.2 million in April 2020, representing a 43.7 percent increase and 2.9 percent higher than the remittances in March 2021,” said CBK in its weekly bulletin.

The cumulative inflows in the 12 months to March 2021 totalled USD 3,308 million compared to USD 2,801 million in the same period in 2020, an 18.1 percent increase.

The United States continues to be the largest source of remittances into Kenya, accounting for 57.2 percent of remittances in April 2021.

Diaspora inflows have remained Kenya’s largest source of foreign exchange since 2015.

In 2020, Kenyans abroad sent home Sh341 billion defying the pandemic odds.

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