A turf war has erupted among textile manufacturers barely two months after the Treasury granted extension allowing the sale of subsidised fabric in the local market.
The battle pitting 48 apparel manufacturers against 17 of their competitors who are registered under the Export Processing Zones (EPZs) follows the recent measures seen to favour the latter.
At the start of this financial year, Kenya successfully lobbied its partners in the East African Community for extension of an offer which allows EPZ firms to offload 20 per cent of their annual production duty-and-VAT free in the domestic market.
The Kenya Association of Manufacturers (KAM), which represents both categories of textile producers, wants the government to stop the EPZ firms from selling their products tax-free in the local market “since it poses unfair competition to non-EPZ firms.
“The stay of application was renewed in 2017. This has created uneven playing field for textiles and apparels manufacturers. Non-EPZ manufacturers cannot compete with the highly incentivised products from the EPZ manufacturers,” says KAM in a report released last week.
Among other incentives, firms operating under EPZ enjoy a 10-year corporate income tax holiday and a 25 per cent tax rate for a further 10 years thereafter, a 10 year withholding tax holiday on dividends and exemption from VAT and import duty.
These incentives are not available to other manufacturers which have to pay corporate taxes at standard rate of 30 percent and VAT at 16 percent.
Acting CEO and head of membership development at KAM Tobias Alando says the current stay of application in EAC for Kenyan EPZ-based textiles and apparels manufacturers has squeezed the market share of non-EPZ members.
“It is an issue of striking balance so that we have those not in EPZ also remaining in business. The current scenario has cut market share of exports of non-EPZ firms to EAC markets,” said Mr Alando.
EPZ-based manufacturers employ 52,000 people while the local sector directly employs about 21,000 people in formal sector and more than 30,000 informally, according to the lobby.
Illicit trade is a major threat to the textiles and apparels market with KAM putting un-customed products for textiles and apparels market at Sh48 billion. This is about two times the value of local textiles and apparels manufacturing turnover.
“As such, the government is losing about Sh21.36 billion from 16 per cent VAT, 25 per cent common external tariff, 1.5 per cent Railway Development Levy and two per cent Import Declaration Fee,” it says.
It wants the Kenya Revenue Authority to combat illicit trade by introducing a blanket taxation of Sh2 million for a 20-foot container and Sh4 million for a 40-foot container of textiles and apparels products.