Firms cry foul over carton paper taxes

 

Manufacturers say two new tax measures contained in the Finance Act 2023 have sent shockwaves into the horticulture and tea industries after the new levy pushed up prices for imported Kraft paper, a critical raw material in the production of cartons.

The introduction of the 10 percent export and investment promotion levy and the decision by Kenya to raise duty on imported paper and paper products has raised effective taxes on uncoated Kraft paper to 74 percent from 13 percent.

This has made it costly for carton manufacturers to produce packaging materials for companies that export tea, fruits such as avocados and vegetables, a presentation to the National Assembly’s Finance Committee by the Kenya Association of Manufacturers (KAM) shows.

This is higher than the taxes on Kraft paper going into Kenya’s neighbouring countries including Uganda where this paper does not attract any tax. In Tanzania, where Kenya imports a lot of Kraft paper, the taxes are at 26.5 percent. With expensive packaging materials, some of Kenya’s exports such as tea, flowers, fruits and vegetables, have become expensive.

Some players engaged in paper conversion now argue the levy is counterproductive to its objective of boosting its exports, as they are not able to access quality Kraft paper from the local market.

“We are an agricultural country, and we export. So, when the government having been influenced by whoever they were influenced by, felt that they could levy taxes on imported raw materials, paper products, what they essentially did is that they increased the price of our horticulture and tea exports,” said Kimani Mwaura, Managing Director East African Packaging International (EAPI).

“As a result now, the entire product is less competitive on the global market,” added Mr Mwaura.

Some companies which enjoy duty remission because they manufacture cartons for packaging export produce such as pineapples, avocados, flowers and tea, have allegedly been Denied duty Remission Scheme (DRS).

These companies use DRS to import raw material without paying duty as long as they can show it is for packaging exports.

Because Kraft paper is exceptionally coarse and strong, it is used in multiwall bags, shipping sacks, tape, sacks, envelopes, and wraps.

Only Europe and a Tanzanian company are producing Kraft paper. Mwangi noted that the production from Tanzania is not enough.

By DOMINIC OMONDI