Note the manufacturers’ control cries
Friday March 5th 2021
BY JAINDI KISERO
- The recourse to court is a sign of a deterioration in relations between the government and a sector that remains the largest contributor to national income.
- With manufacturing still being hit by the effects of the coronavirus pandemic, the need of the hour right now is collaboration, mutual respect and trust between government and business.
- Indeed, it is a shame that the two were forced to face each other in court instead of dealing with the country’s problems together.
I have the authority that the manufacturing lobby – the Kenya Association of Manufacturers (KAM) – has now decided to go to court to challenge the controversial minimum tax.
The recourse to court is a sign of a deterioration in relations between the government and a sector that remains the largest contributor to national income.
With manufacturing still being hit by the effects of the coronavirus pandemic, the need of the hour right now is collaboration, mutual respect and trust between government and business.
Indeed, it is a shame that the two were forced to face each other in court instead of dealing with the country’s problems together.
In the past, bodies such as the Joint Industry and Trade Committee have facilitated dialogue between business and government. It was very unusual to resort to courts.
Cooperation and mutual respect between government and business are clearly no longer a high priority in this country.
In Tanzania, the minimum tax only applies to companies that have been in a loss position for three consecutive years. In Nigeria, as of January 20220, companies that have been in business for less than four calendar years are exempt from the minimum tax.
The way the tax was introduced here is a vivid example of the arrogance of power by the tax policy elite in the Treasury.
Arrogance and bureaucratic hubris are the reason why tax law changes can be introduced without considering public proposals, even when independent experts and the press warn that the proposed tax changes point to an obvious disaster.
In the prevailing way of thinking, the views and representations of the most important taxpayer groups such as the manufacturer lobby are unceremoniously dismissed as vested interests.
Here is some background information on the controversial tax. Firstly, this tax is levied at one percent on the gross turnover of a company for which the minimum tax under the existing regulation is higher than the installment tax.
Second, the main justification for the introduction is that companies that make losses must pay a fair share of corporate taxes despite the losses they make. Third, the government wants to prevent companies from improperly using tax laws to reduce their corporate tax liabilities.
Fourth, the government wants to deal with perceived inequalities in the taxa system.
In reality, what the government is doing is prescribing amnesia for manufacturing. First, this tax is related to a deterioration in macroeconomic conditions, characterized by stagnant private sector borrowing, falling corporate profitability, which is manifested in an increase in profit warnings from listed companies and stagnant electricity consumption by industrial users and stagnant growth.
Indeed, this is a sector that continues to operate in a very difficult climate characterized by high energy costs, high prices for imported raw materials, rapid devaluation of the shilling and a port in Mombasa whose efficiency has recently deteriorated significantly Has.
The minimum tax comes at a time when the government’s top priority should be to manage the high cost of doing business and improve the investment climate for manufacturing.
I have already said it in these columns and I will repeat it here. One of the big problems in this country is the instability of the financial regime. We are making changes to tax law unpredictably, regardless of the private sector impact on future plans.
The tax was written without regard to the incredible damage it must do to manufacturing. It arises from the attitude and way of thinking that the state has the first right to everyone’s income and that what remains for the taxpayer after taxes is a gift from the state to the undeserved citizen.