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Kenya: KAM Says Tax Proceeds Should Go to Green Causes
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Business Daily (Nairobi)
1 May 2008
Posted to the web 1 May 2008
Jim Onyango
The Kenya Association of manufacturers (KAM) claims the Government has not utilised the money generated from excise duty on plastics to clean the environment.
The 120 per cent duty on plastics effected in January was intended to discourage the use of polythene but KAM says the money should also be used in the disposal of plastic.
It is estimated that the State collects Sh200 million a month from the 120 per cent tax slapped on plastic manufacturers in January.
"Industry players want to know whether or not the Government is planning to clean the environment or if this was just another tax on the poor consumer," the Kenya Association of Manufacturers says in a communication to the industry.
KAM says the $20 per tonne levy on raw materials would have been more manageable. It estimates the levy would have raised Sh315 million a year.
Two leading plastic manufacturers are reportedly preparing to transfer production to Dubai and Ethiopia to avoid the stringent 120 per cent tax introduced to discourage the use of plastic bags in Kenya.
KAM said more firms were expected to relocate to countries with better laws to solve the plastic bags menace.
The threat of relocation carries with it thousands of job losses as plastic makers complain that the Government has not used proceeds from the new tax to rid the environment of plastic waste.
The East African Plastic Association says plastic companies have shed a total of 5,000 workers since January when the excise duty was effected.
"The entire plastic industry in Kenya has employed about 4,000 workers. We are scaling down and this will in the long run harm the economy," said Mahesh Dodhia, the chairman of the East African Plastic Association.
KAM estimates that half of Kenya's plastic companies are having liquidity problems and could be forced to close shop.
"Some relocations to countries with a more favourable business environment are being reported," KAM said. Finance minister Amos Kimunya also proposed to impose a ban on thin plastic bags to force manufacturers to make environmental friendly bags.
The manufacturers are required to pay the excise duty on the 20th of every month, while their customers pay after 60 or 90 days. Most companies have to finance the tax from internal resources.
A company based in Mombasa is relocating to Dubai from where it will export to Kenya.
Plastic manufacturers say they have to raise more than double their working capital to finance the 120 per cent levy.
"Banks are not interested in lending to plastic companies because of the unstable nature of the business," said Mr Dodhia.
Mr Kimunya, in his 2007/2008 Budget speech slapped a 120 per cent excise duty on plastics to protect the environment from further degradation.
A ban on bags less than 30 microns thick and excise duty on thicker ones were aimed at reducing the use of polythene bags and providing money for the management of plastic garbage disposal. This has, however, ended up inflating the prices of basic commodities packaged in plastic carriers.
Prices of packaging materials have gone up, pushing those of basic foodstuff higher. Packaging cost for bags over 30 microns have gone up more than two times.
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The June Consumer Price Index (CPI) released by the Kenya National Bureau of Statistics indicated that general prices of goods and services have increased this year. A sharp rise in the prices of food items pushed Kenya's inflation to 21.8 per cent in March from 19.1 per cent in February.
This means that families spent a fifth more on the same food items than they bought in the month of February.
A 400gm of Supa loaf bread, for instance, is selling at Sh37 up from Sh28 in December last year.
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