A survey carried out by the Kenya Association of Manufacturers (KAM) and KPMG on the impact of Covid-19 on the manufacturing sector in Kenya has offered a number of recommendations that needs to be implemented to rescue a sector that is fast sliding into a distress.
Covid-19 has caused a massive shock to economies, businesses and households at large in the world. However, adequate support in easing cash flow burdens, addressing rising unemployment, and kick-starting market demand, may help businesses navigate through the Covid-19 crisis, the survey report notes.
The recommendations are based on the analysis and feedback received from the participants of the survey, who were drawn from KAM membership.
The Government should prioritize clearing all outstanding Value Added Tax (VAT) refunds and pending bills owed to the manufacturers, the report, that was launched today, said.
“This is critical in order to avoid systemic bankruptcies in the private sector in general. The government should also rely on systems put in place such as green channel, which is aimed at expediting the processing of VAT refunds,” the report recommends.
Although the government, through the Tax Laws (Amendments) Act, 2020, introduced a number of reliefs to combat Covid-19, it brought VAT on a number of items that were previously zero rated or exempt from VAT.
By introducing VAT on these items, doing business has become more expensive and the government should consider reintroducing the previous reliefs such as: zero rating pharmaceutical products; providing relief on raw materials imported into the country; and reintroducing the higher wear and tear allowances as well as allowing businesses to claim the entire Investment Deduction allowance in the first year of use. The reversal of those tax policies could be enacted through the current Finance Bill, 2020, the report points out.
The report also recommends moratorium on changes in the tax regime. The Covid-19 crisis has occasioned severe cash flow challenges to businesses.
“The government should consider providing a moratorium on tax regime changes during the crisis period to give room to businesses to adjust. An example is the Minimum Alternative Tax of 1% on income under the Finance Bill, 2020 that will be disastrous on loss making businesses that are already tight for cash,” the survey report said.
The government should also consider establishing an emergency rescue fund, supported by development partners, to identify and support the most vulnerable businesses and entrepreneurs affected by Covid-19.
This could include smaller MSME manufacturers focused on retaining employees as this will ease the liquidity challenges and consequently help employees continue to engage in full and productive employment and decent work in line with the United Nation’s Sustainable Development Goal 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
Coverage of social protection measures already instituted by the government through the emergency response fund that are targeting vulnerable groups in society and workers who have lost their jobs, the report proposes, should be widened. In addition to direct cash transfers (helicopter money) to targeted individuals, indirect transfers to individuals through the manufacturers could be considered
To further enhance the liquidity of the manufacturing sector, commercial banks with the support of the Central Bank of Kenya and the national Government should consider instituting additional measures including increasing moratorium for loan repayments interest to 6 -12 months, decrease interest rates further to about 8%, Give the entire loan and overdraft books a full waiver for the 3 months and put a cap on fees for re-arranging facilities due to Covid-19 and an exemption for excise duty on those fees which is currently at 20%.
Ease of regulations on importation of raw materials, intermediate goods, industrial spares and machineries especially where ports of origin have been closed down and inspecting agencies are not operating optimally should be considered.
The government should also consider subsidizing the cost of compliance to curb the spread of Covid-19 including testing employees, Personal Protection Equipment and sanitizers, as well as ensuring adequate supply of water.
A comprehensive rebound strategy for the general economy should be developed placing particular focus on the manufacturing sector.
“A sector-based rebound strategy that is currently being developed by KAM could be adopted with the view of overcoming challenges associated with Covid-19. This will ensure Kenya bounces back quickly on the path towards sustainable economic growth and development,” said the report.
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