The Kenya National Chamber of Commerce and Industry (KNCCI) has lauded the 2019/20 Budget Statement by the government.
The budget whose theme is “Creating Jobs, Transforming Lives-Harnessing the ‘Big Four’ Plan” was tabled to the parliament on 13th June, 2019.
“As KNCCI we believe the new measures taken by treasury to meet the Sh3.02 trillion ($29.6 billion) shall improve revenue generation. Specifically, generation of revenue from the digital economy, reliance on third-party information to identify non-compliant taxpayers, usage of technology to match taxpayer’s data through electronic filing, registration of more taxpayers on the iTax system, utilization of Data Warehousing and Business Intelligence, and passage of the Income Tax Bill will ease administrative bottlenecks, improve compliance and boost revenue collection.” A statement from the organization read in part.
Being a leading voice of the business community more specifically for the SME sector in the country, KNCCI welcomes the Sh367.34 billion ($3.599 billion) allocated to the Big 4 Agenda: Health Sh82.8 billion ($811.4 million), Food security Sh55.97 billion ($548.5 million), Manufacturing Sh125.42 billion ($1.229 billion) and Housing Sh103.15 billion ($1.010 billion). The Chamber considers these budgetary allocations as providing incentive to SMEs to come up with innovative entrepreneurial business models in these sectors.
Challenges in the SME sector
According to KNCCI, one of the major challenges SMEs in Kenya face is inadequate access to credit.
“In our latest policy brief dubbed “Improving access to credit in Kenya”, we took up the issue of inaccessibility to credit and made recommendations to the government to come up with a “Biashara Fund” that would finance and support the needs of SMEs in the country. The Chamber is glad that the government has taken up our recommendation and created “Biashara Kenya Fund” which will give special priority to SMEs owned by the youth, women and persons with disability,” said Chamber President Mr Richard Ngatia.
In order to overcome the challenge of SMEs being unable to access credit due to impediments associated with collateral requirements, the chambers made some recommendations to the government through in our most recent policy submission “Advancement of SMEs” requesting the government to establish a Credit Guarantee Scheme.
“The Chamber is delighted to note the government took our submissions and an SME Credit Guarantee Scheme is in the process of being launched for the benefit of the business sector. We equally applaud the government for taking the issue of collateral requirements seriously and moving with speed to establish the mobile loan product dubbed “Stawi loans” which offers unsecured loans to SMEs in the country. We expect removal of bottlenecks related to access to credit for SMEs will boost investments, increase supply of goods and services needed by consumers, create employment and consequently contribute to the growth of the economy through improvement of the country’s tax base from which the government will be able to get more tax revenue to finance future budgets,” Mr Ngatia said.
Interest rate cap
The chamber recommendation that the interest rate cap has had adverse effects on accessibility of credit by SMEs has been captured well through the recommendation that the cap is going to be lifted. The removal of the cap will provide an added incentive to banks to loosen risk considerations before extending credit to SMEs and this will translate to increased access to credit by businesses.
The Chamber has recently made submissions to the government that an increasing cost of doing business was becoming a challenge to ease of doing business by SMEs in the country. “Specifically, we identified cost of electricity as a key challenge for SMEs in the manufacturing sector. The Chamber is glad the government is keen on addressing this challenge through amendment of the Income Tax Act to provide for a deduction of 30 per cent of total electricity by manufacturers as rebate. This move is going to provide an incentive to SMEs in the manufacturing sector through reduction of cost of electricity by 20 per cent. The outcome will be expansion of SME operations, employment creation, making Kenyan products competitive in the East African region and expansion of the country’s tax base that will serve as source of tax revenue for the government in future fiscal years.” Mr Ngatia noted.
In its policy brief last year dubbed “Enhancing Commitment to Contractual Obligations by Government in Payment of Suppliers” KNCCI noted that SMEs which constitute majority of its membership were facing the challenge of bulging pending bills which affected their liquidity, operations and job security of workers. The organisation initiated dialogue with the government on how best the issue of pending bills could be addressed.
“… and we are now glad that the government has prioritized payment of Sh10.9 billion ($106.9 million) which will be honored by end of this month. We expect payment of the bills to improve liquidity of SMEs, expand operations and create employment to the Kenyan youth.” Mr Ngatia added.
Other recommendations made by KNCCI included the fact that the challenge of inadequate training and capacity building for SMEs could only be addressed through establishment of industrial parks and sheds in the country. The Chamber is glad to note that the government, in the FY 2019/20 budget statement, has initiated reforms that encourage investments in establishment of industrial parks and sheds. Specifically, the move to revive the textiles sector by making budgetary allocation for RIVATEX will create employment to 3000 Kenyans. The equipment of the youth, women and persons with disability with necessary entrepreneurial skills will translate to better management of business entities, improved innovativeness, liquidity, potential to create meaningful employment and mitigation against high risk of failure.
Kenya has the highest level of youth unemployment in East Africa at 39.1 per cent and the Chamber has made recommendations that could help alleviate youth unemployment.
One of the recommendations has been establishment of a job centre which could help the youth, women and persons with disability to gain access to decent jobs.
“We laud the move by the government to launch the Ajira program and exemption of income generated thereof from taxation. We believe this is going to create incentives for the youth, women and persons with disability to become productive economically and be able to create demand for goods and services produced by SMEs.” KNCCI says in a statement.
Taxes, fees and fines imposed on SMEs by the government have been a perennial challenge hindering growth of the business sector. The FY2019/20 budget statement proposes to reduce withholding VAT rate from 6 per cent to 2 per cent and we believe this is going to improve profitability of SMEs, enhance their capacity to expand and even employ more youth, women and persons with disability.
Zero rate import duty on raw timber
KNCCI expects reduction of import duty on raw timber from 10 per cent to 0 per cent while keeping it at 25 per cent for final timber products to create an incentive for businesses in paper, furniture and timber sectors. Additionally, reduction of Import Declaration Fee (IDF) on raw materials and intermediate goods from 2 per cent to 1.5 per cent while increasing it to 3.5 per cent for finished goods will promote SMEs in the import and manufacturing sectors through improving competitiveness of their goods and services not only in Kenya but also within the East African community.