Taxes lead to closure of Nanyuki bike factory
Unlike county revenue boards, the Kenya Revenue Authority (KRA) has coercive power.
For example, they can issue an agency notice on you or your organization. This allows
them to get into your bank account and help themselves to what they think they are
owed. Many County Governors are horrified when they find this out. I readily admit
that I was too.
While Laikipia governor, I was dismayed when informed that KRA had an agency notice
on us because we were ten days late in remitting payroll taxes. So, all the own source
revenue that we were collecting that week was going directly to settle KRA. As though
to add insult to injury, KRA then issued a demand. 759 million shillings in back taxes
for the period when my predecessor was in office.
Unfortunately for KRA, upon election as governor, I had found trophies declaring
Laikipia County as the best tax payer for several years, so I asked them why they had
issued the trophies, if there were such back taxes. Still they insisted and we ended up
in the tax tribunal. The ensuing assessment concluded much to the relieve of my
government, that we should pay 3 million shillings.
More recently I was quite upset when KRA sent me an email, claiming that I personally
owed them 15.9 million shillings in pay as you earn, for the period I was Governor. It
turns out that they had an internal reconciliation problem. Even the taxman can make
mistakes.
Much to the dismay of all, these mistakes seem to be increasing. Under pressure from
a wasteful and extravagant regime, the KRA is pushing Kenyans and their businesses
hard for taxes. To this end, they have demanded that everyone uses eTims system to
generate invoices and receipts.
KRA’s coercive power means they can tell you what to do. As everyone now knows, to
ensure compliance, they have decreed that they will not recognize as costs for tax
purposes any payments done without an eTims receipt. Kenyans have been trying
hard to comply. Except that eTims system is unstable, experiencing outages for days
at a time.
KRA won’t say what is wrong, except that the system is down. Businesses are frustrated.
Forced to go physically to KRA offices, most small businesses have been stranded for
weeks. With customers demanding eTims invoices and receipts, business is at a
standstill. Without cash flow, small business can neither pay taxes nor service expensive
loans. It is no wonder then, that nonperforming loans are at the highest level since
2006.
Which leads me to Nanyuki. Tiger, the motor cycle assembler located there is closing.
Reports indicate that they are re-locating to Tanzania, citing taxation as the main
problem. Taxation has driven motor cycle prices from 70,000 to 150,000 shillings. The
assembler had employed hundreds of people, now he has four, whose job is to sell off
existing stock and close the factory.
Those who wish to be recognized as Mt. Kenya kingpins attended a big hang out last
weekend. Popularly known as ngogoyo, the party is usually an occasion for the middle
class to release steam over goat meat and muratina. Usually held in the farmlands of
Kieni and Laikipia, hundreds, sometimes thousands attend this musical extravaganza.
For politicians seeking an audience, the party is an irresistible magnate.
This month’s edition was in a field in Nanyuki, about one hundred meters from the
Tiger motor cycle assembly plant. You would think the matter of business closure
would come up, seeing that senior regime leaders were gathered for merry making
just outside the factory. It did not feature. Such is the disconnect of the current crop
of political leaders with the economic realities in the Republic. Drunk with what they
think is power, they are yelling loudly, unhappy that the mountain region does not
seem to notice their might, choosing instead to go to Limuru. But it is hard for
businesses to notice while they are closing.
And matters will only get worse. The current medium-term expenditure framework
calls for taxes to increase by 350 billion every year for the next three, the equivalent of
27,000 shilling for every adult Kenyan, working or not.
Amidst all this, the devolution fraternity is itself poised to gather later this month in a
conference about own source revenue. The big difference with taxes is that most own
source revenue is a fee for service. Such fees are unlikely to lead to business closure.
This fact is missed by the national government as well as development partners.
The state departments for trade, industry, cooperative and small business, think that it
is county taxes and multiple licenses creating problems for business. As a result, they
design programs together with development partners to solve this imaginary problem.
In the most current such program, the national government will attempt to persuade
or coerce counties to eliminate the multiple licenses.
But if they cared to listen to Tiger, he will explain that he was the largest distributor of
motor cycles in Mt Kenya region. And rather than importing the bikes, he chose to
import some parts, machine others locally, and then assemble them. The choice of
Nanyuki was the centrality of the location. All his customers were within two hours of
driving. Granted, he had to pay single business permits in more than one county.
Irritating yes, to have to pay ten thousand shillings in each of various counties, but he
could live with it.
At first, his business was thriving. Every day trucks were lining up to load bikes. But
the change in taxation, particularly the imposition of VAT on the bikes and their inputs,
has doubled the price at which he has to sell the bikes, making him uncompetitive.
Sales have dropped off. After months of struggling, he has closed the assembly plant,
and is selling the last remaining stock.
@NdirituMuriithi is an economist
