Firms up in arms over plan to scrap recycling tax relief

Manufacturers have protested National Treasury’s bid to scrap the tax relief offered six months ago to investors setting up plastic recycling plants.

The Finance Act 2019, enforced last November, had halved the corporation tax to 15 percent for the first five years of operation.

The incentive, which was expected to boost the bid to rid the environment of the plastics menace, was, however, seen as discriminatory by some tax experts as it left out plants that were already in recycling business.

Treasury secretary Ukur Yatani has in the Tax Laws (Amendment) Bill 2020, set for debate and approval by lawmakers this week, proposed to scrap the tax incentive for new ventures in plastic recycling.

Kenya Association of Manufacturers (KAM) chief executive Phyllis Wakiaga, however, wants the proposed change to the taxation laws deferred to allow time for input from stakeholders post Covid-19 war.

“The industry has barely benefited from this since its introduction late last year and the proposal in the Bill seeks to reverse this and thereby introduce a 25 percent tax without a long-term impact assessment to inform the policy change,” Ms Wakiaga said in letter to Mr Yatani.

Kenya on August 28, 2017 banned manufacture and use of single-use polythene carrier bags, leading to shut down of tens of plants.

“This (removal of lower corporate income tax) move erodes the efforts that the government has made in the recent past to protect the environment through deliberate measures such as banning the use of plastic bags, promoting the setting up of recycling plants among others,” tax experts at consultancy and audit firm KPMG wrote in a note on the Bill.

The proposal to scrap the reduced corporation tax is among other non-Coronavirus fiscal measures the manufacturing sector lobby last week said should be put on hold by deferring debate and approval by the legislators.

Others include the proposed removal of 30 percent rebate on electricity bills for profitable factories and removal of medicines and agricultural inputs as well as ordinary bread from zero-rated Value Added Tax (VAT) status to exempt.

This means manufacturers will not claim 14 percent VAT refund if MPs approve the Covid-19 emergency bill without changes.

“The move and timing of the introduction of the non-Covid-19 related fiscal measures is ill timed due to the current corona virus crisis that has and is expected to further have severe effects to the country,” Ms Wakiaga said.

“This letter is to, therefore, request you to urgently instruct the National Assembly to only debate the Covid-19 fiscal measures.”