The contentious Finance Act 2023 of Kenya has now come into force, retroactively to July 1, following the removal of conservatory orders by the Court of Appeal, having an impact on living expenses and trade with the rest of East Africa.
The Kenyan government's intention to impose an Export Development and Promotion Levy (EIPL) on imports, which might result in Kenya losing trade with its EAC allies, has been contested by the Kenya Association of Manufacturers (KAM), the Federation of Kenya Employers, and tax consulting businesses.
The EIPL on all items brought into the nation for domestic use has raised under the new law from 10% to 17.50% of the customs value. However, products with EAC partner state provenance that adhere to the Rules of provenance are exempt.
“The Act has imposed a 10 percent levy under the Export Levy while the rest of East Africa is at zero percent,” the Kenya Association of Manufacturers relayed via a statement. “The immediate impact of that is that the levy will create trade diversion in favor of neighboring countries. It will also promote investment in Comesa countries,” the statement adds.
KAM said in a speech before the Departmental Committee on Finance and National Planning of the National Assembly that although Tanzania is aiming to become the regional hub, Uganda and Tanzania are now Kenya's top regional importers.
Kenyan imports from Tanzania have dramatically grown over the previous several years, rising from Ksh18 billion ($126 million) in 2018 to Ksh54 billion ($378 million) in 2022. “If Kenya is not careful, it will become a supermarket of the region,” the KAM remarked.
They expressed worries about numerous others that will prevent the goal from being achieved while acknowledging that certain of the law's measures are intended to promote manufacturing expansion in certain areas.
For instance, they said that the EIPL is bad for cement, paper and paper board, steel, and metal manufacturers. While the neighboring nations have zero-rated, the Act has imposed import taxes on steel and other manufacturing sectors. Galvanized iron wire is subject to a 10% duty in Kenya while it is exempt in the other EAC countries.
“The CET rate is 25 percent but there is a regional duty remission to apply zero percent. With the introduction of the levy for this particular product, the trade will favor Tanzania and Uganda. This tax should have been put on finished products and not raw materials,” said KAM.