Navigating Tax Issues In the Manufacturing Sector
The manufacturing sector is a key contributor to Kenya’s Gross Domestic Product (GDP) and is also a major creator of employment. However, the manufacturing industry is among the hardest hit sector by the COVID-19 pandemic, and it can greatly benefit from proper tax planning and cash savings associated with optimised tax compliance.
Additionally, the Government has availed certain tax incentives in a bid to promote the manufacturing industry. This said, the sector is on occasion not aware of such incentives and/or the eligibility criteria for such incentives and as a result, qualifying businesses miss out on incentives rightfully available to them.
Further, recent changes in tax legislation as well as increased compliance scrutiny by the Kenya Revenue Authority, necessitates companies in the manufacturing sector to take a close look at their tax matters in a bid to optimise compliance with the tax laws and regulations.
In a webinar hosted by PricewaterhouseCoopers Limited to discuss tax matters in the manufacturing sector on 5 October 2021, the professional services firm noted that it is imperative for companies in the manufacturing sector to rethink their perspective to tax compliance and embed tax into their business planning as part of their strategy to survive any economic storm and the attendant disruptions.
In discussing some of the measures the manufacturing industry can take to weather the current economic storm, Job Kabochi, PwC Africa’s Indirect Taxes leader, noted that businesses should focus on measures within their control e.g., ensuring proper record keeping and accurate return filing.
In the same vein, Corazon Ongoro, a Customs manager at PwC, noted that compliance with Customs import and export procedures plays a crucial role in keeping tax demands from the revenue authority away. Ms Ongoro also encouraged the manufacturers to take advantage of available options for faster import and export clearance of goods such as the Authorised Economic Operator (AEO) scheme as way of increasing efficiency in the manufacturing
However, the above administrative measures must be complemented by continued fiscal policy conversations with the relevant policymakers. For instance, in comparing the Kenyan tax legislation on input VAT recovery to that of other jurisdictions, for example, the United Kingdom, Priya Shah, a Senior Tax Manager at PwC Kenya, noted that perhaps it is time that the Kenyan policymakers rethink the VAT refund formula; which in its current form restricts recovery of input VAT genuinely incurred for making of taxable supplies.