Consumers are likely to pay more for imported goods after the Treasury opted to increase tax on foreign products rather than cut duty on raw materials to boost domestic manufacturers’ competitiveness.

Principal secretary Kamau Thugge has indicated Finance Bill 2018 will contain a wave of increases in duty on final goods in a protectionist policy aimed at discouraging importers from shipping in products already being made by local firms.

“It was agreed we leave the Railway Development Levy (RDL) and Import Declaration Fee (IDF) unchanged, but increase the (import) duty on final goods to protect local manufacturers of final goods,” Dr Thugge said in a text message, without disclosing specific goods targeted.

The planned rise in duty may set the stage for price increases on basic commodities such as wheat flour, vegetable oils and clothes, which are both imported and made locally, potentially eroding the purchasing power of households.

The Kenya Association of Manufacturers (KAM) had proposed an increase in the IDF on finished imported goods to 3.5 per cent of value of imports from 2.5 per cent presently and doubling of RDL to three per cent.

Zero rating

The lobby was further rooting for zero-rating of the two import levies on raw materials and machinery to make local industries competitive by lowering the cost of making domestic products.

The Treasury has, however, decided to slap higher taxes on foreign finished goods and leave the import levies on industrial supplies unchanged to protect its ordinary revenue, projected at Sh1.74 trillion next financial year from July.

The two levies – IDF and RDL – generated taxes of about Sh69 billion last year based on imports of Sh1.725 trillion.

KAM chairperson Flora Mutahi has said failure to give incentives to manufacturers may derail President Uhuru Kenyatta’s industrialisation agenda, maintaining cost of production in the country is about 12 per cent higher than global benchmark.

Not long-term

“Big Four” is not a long-term project. The President wants results before he leaves. We thought we needed to have all guns blazing at the same time because manufacturing investment cycle is not an overnight thing,” she said.

“It is rather unfortunate (we didn’t get incentives) but at least it (disincentives on importers of final goods) is step forward rather than nothing and we will continue with consultations.”

Dr Thugge has further dismissed suggestions the Treasury was planning to increase the railway levy on finished imports to partly shoulder the cost of loan repayments.