Given the high cost of living currently faced by consumers, the proposal to put a 20% excise duty on locally produced pasta has been dropped by parliament. The Finance and National Planning Committee decided against including the tax on locally produced pasta in the Finance Bill 2023. Let’s explore the notification in detail:
In a report on the committee's review of the Finance Bill, its chair, Kuria Kimani, stated: "The committee observed that it is important to protect the local industry to give them a competitive advantage." Kenya now only has one company producing pasta, and that is My Pasta Limited.
All other pasta is imported into Kenya and is subject to a 20 percent excise levy that was added in the Finance Bill, 2021.
Following a plea from the Kenya Association of Manufacturers, the committee decided against imposing a 20 percent excise levy on domestically and imported pasta.
The manufacturer's lobby warned the Finance and Planning Committee that an all-encompassing duty would raise the cost of local production and drive out the only competitor in the area.
Following a plea from the Kenya Association of Manufacturers, the committee decided against imposing a 20 percent excise levy on domestically and imported pasta. Also, get Kenya trade data
"Their proposal was accepted," Mr. Kimani stated in the report on the Bill that MPs discussed on Wednesday.
In the Finance Bill 2023, the Treasury had suggested enacting a tax on imported semolina; the basic ingredient used to make pasta, as well as finished pasta items like noodles and spaghetti.
The Sh4 billion that traders pay to import finished pasta and raw materials was a target for the government.
Noodles are one of the many variations of the Italian cuisine known as pasta. In Kenya, Indomie noodles are a well-liked kind. The additional excise duty also applies to spaghetti, macaroni, lasagna, gnocchi, ravioli, cannelloni, and couscous.
The cost of creating pasta in Kenya would have increased with the imposition of excise duty on semolina, the raw material, with prices possibly jumping by 25% from Sh147 for 500 grams of spaghetti to Sh184.
The Kenya Association of Manufacturers (KAM) chairman, Rajan Shah, warned the committee that slapping pasta and other locally produced goods would lessen their competitiveness.
"I wonder why the government wants to raise taxes on local manufactured goods...affecting the only known local manufacturer who should be encouraged to build a larger market including helping them to export to the region for the balance of trade benefits for our country?" Rajan asked.
The only other nation in the East African Community (EAC) that produces its pasta is Tanzania, therefore higher excise taxes on domestically produced pasta will render it uncompetitive. In Tanzania, there is no excise tax on pasta.
Currently, a value-added tax of 16% is applied to locally-made pasta. Fast-paced urban households now frequently prepare pasta, which includes spaghetti and macaroni, by boiling it.
The previous Cabinet Secretary for National Treasury removed the import tax on Semolina in his budget address for the fiscal year 2015–2016.
This encouraged local investors to enter a market that had previously been dominated by imports from nations like Egypt, Turkey, Iran, and the United Arab Emirates.
According to Kenya Trade Data, Kenya imported pasta worth Sh4 billion ($29.1 million) in 2021. At the height of the Covid-19 outbreak in 2020, imports of pasta reached a high of Sh5.5 billion ($40.3 million), according to official data.
Since then, the amount has decreased to Sh4 billion, and more than half of the food is still imported from Egypt.
Relief can be felt when Members of Parliament (MPs) drop taxes on Kenyan-made pasta through a bill for several reasons:
Promoting local industries: By eliminating or reducing taxes on Kenyan-made pasta, MPs are supporting and encouraging the growth of the domestic pasta industry. This move can help create job opportunities and stimulate economic development within the country.
Cost reduction for consumers: Dropping taxes on Kenyan-made pasta can lead to a decrease in its retail price. When taxes are lowered, the final cost to consumers becomes more affordable. This can be particularly beneficial for lower-income households, as it reduces the financial burden of purchasing essential food items.
Enhanced competitiveness: Reduced taxes can make Kenyan-made pasta more competitive in the market. When domestic products become more affordable compared to imported alternatives, consumers are more likely to choose locally produced goods. This can lead to increased market share for Kenyan pasta manufacturers and contribute to the overall growth of the industry.
Food security: Supporting local industries like pasta production contributes to the country's food security. Dependence on imported pasta could pose risks if there are disruptions in the global supply chain or fluctuations in international prices. By promoting locally made pasta, MPs can strengthen Kenya's self-sufficiency in this staple food item.
Agricultural support: Pasta production often involves the use of wheat flour, which is derived from wheat crops. By encouraging the growth of the domestic pasta industry, MPs indirectly support local farmers who cultivate wheat. This can provide a boost to the agricultural sector and contribute to the livelihoods of farmers.
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