Taxes lead to closure of Nanyuki bike factory

Unlike county revenue boards, the Kenya Revenue Authority (KRA) has coercive power. For example, they can issue an agency notice on you or your organization.

This allows them to get into your bank account and help themselves to what they think they are owed. Many County Governors are horrified when they find this out. I readily admit that I was too.

While Laikipia governor, I was dismayed when informed that KRA had an agency notice on us because we were 10 days late in remitting payroll taxes.

So, all the own source revenue that we were collecting that week was going directly to settle KRA.

As though to add insult to injury, KRA then issued a demand - Sh759 million in back taxes for the period when my predecessor was in office.

Unfortunately for KRA, upon election as governor, I had found trophies declaring Laikipia County as the best taxpayer for several years, so I asked them why they had issued the trophies, if there were such back taxes.

Still, they insisted and we ended up in the tax tribunal. The ensuing assessment concluded much to the relief of my government, that we should pay Sh3 million.

More recently, I was quite upset when KRA sent me an email, claiming that I personally owed them Sh15.9 million in pay as you earn, for the period I was Governor.

Wasteful and extravagant regime

It turns out that they had an internal reconciliation problem. Even the taxman can make mistakes.

Much to the dismay of all, these mistakes seem to be increasing. Under pressure from a wasteful and extravagant regime, the KRA is pushing Kenyans and their businesses hard for taxes. To this end, they have demanded that everyone uses eTims system to generate invoices and receipts.

KRA’s coercive power means they can tell you what to do. As everyone now knows, to ensure compliance, they have decreed that they will not recognize as costs for tax purposes any payments done without an eTims receipt.

Kenyans have been trying hard to comply. Except that eTims system is unstable, experiencing outages for days at a time. 

KRA won’t say what is wrong, except that the system is down. Businesses are frustrated. Forced to go physically to KRA offices, most small businesses have been stranded for weeks.

With customers demanding eTims invoices and receipts, business is at a standstill.

Without cash flow, small businesses can neither pay taxes nor service expensive loans. It is no wonder then, that nonperforming loans are at the highest level since 2006.

Which leads me to Nanyuki. Tiger, the motorcycle assembler located there, is closing. Reports indicate that they are re-locating to Tanzania, citing taxation as the main problem.

Taxation has driven motorcycle prices from 70,000 to 150,000 shillings. The assembler had employed hundreds of people, now he has four, whose job is to sell off existing stock and close the factory.

Motorcycle assembly plant

Those who wish to be recognized as Mt Kenya kingpins attended a big hang-out last weekend. Popularly known as ngogoyo, the party is usually an occasion for the middle class to release steam over goat meat and muratina.

Usually held in the farmlands of Kieni and Laikipia, hundreds, sometimes thousands attend this musical extravaganza. For politicians seeking an audience, the party is an irresistible magnate.

This month’s edition was in a field in Nanyuki, about 100 meters from the Tiger motorcycle assembly plant.

You would think the matter of business closure would come up, seeing that senior regime leaders were gathered for merry-making just outside the factory. It did not feature.

Such is the disconnect of the current crop of political leaders with the economic realities in the Republic.

Drunk with what they think is power, they are yelling loudly, unhappy that the mountain region does not seem to notice their might, choosing instead to go to Limuru. But it is hard for businesses to notice while they are closing.

And matters will only get worse. The current medium-term expenditure framework calls for taxes to increase by 350 billion every year for the next three, the equivalent of 27,000 shilling for every adult Kenyan, working or not.

Amidst all this, the devolution fraternity is itself poised to gather later this month in a conference about own source revenue. The big difference with taxes is that most own source revenue is a fee for service.

Single business permits

Such fees are unlikely to lead to business closure. This fact is missed by the national government as well as development partners.

The state departments for trade, industry, cooperative and small business, think that it is county taxes and multiple licenses creating problems for business.

As a result, they design programs together with development partners to solve this imaginary problem. In the most current such program, the national government will attempt to persuade or coerce counties to eliminate the multiple licenses.

But if they cared to listen to Tiger, he will explain that he was the largest distributor of motorcycles in Mt Kenya region. And rather than importing the bikes, he chose to import some parts, machine others locally, and then assemble them.

The choice of Nanyuki was the centrality of the location. All his customers were within two hours of driving. Granted, he had to pay single business permits in more than one county.

Irritating yes, to have to pay ten thousand shillings in each of various counties, but he could live with it.

At first, his business was thriving. Every day trucks were lining up to load bikes. But the change in taxation, particularly the imposition of VAT on the bikes and their inputs, has doubled the price at which he has to sell the bikes, making him uncompetitive.

Sales have dropped off. After months of struggling, he has closed the assembly plant, and is selling the last remaining stock.

@NdirituMuriithi is an economist