Employers are bracing for extra costs when proposals in the Finance Bill, 2023 come into effect from July 1, with job cuts imminent amid agitation by workers for more pay.
Businesses expect the doubling of value-added tax (VAT) on fuel products to increase operating costs, as it will raise energy, transport and manufacturing costs.
They also expect the introduction of a 1.5 per cent housing levy on workers’ salaries— to which they will also contribute the same amount — to increase wage costs.
“The (housing) levy will increase wage costs by 1.5 per cent and at the same time reduce the take-home pay of employees. We are likely to see an increase in agitation by workers demanding that employers increase wages,” said the Federation of Kenya Employers (FKE).
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The federation said it hopes the government would implement the housing programme well “so that the benefits to the economy in terms of jobs, improved production and circulation of money in the economy are realised”.
But the Kenya Association of Manufacturers (KAM) — the umbrella body representing manufacturers in the country — are concerned that Kenya's manufacturing sector could shed at least 16,000 jobs with the introduction of the housing levy alone, as well as additional wage costs that will make it difficult for employers to maintain jobs.
“When you add it all up, the cost of maintaining employees goes up by as much as five per cent. Some of our textile companies employ 15,000 people, so the impact of what we see as marginal measures will be huge. It will force companies to rework the numbers, in some cases companies may start reducing the workforce to manage their headcount,” said KAM Chief Executive Officer Anthony Mwangi.
He said the manufacturing sector could lose up to five per cent of the 329,000 jobs it created last year.
Employers are also concerned that once fuel prices rise as a result of the doubling of VAT on fuel to 16 per cent, the cost of doing business will increase further, worsening an already poor business environment.
High fuel prices also affect energy prices, the cost of transporting goods and raw materials, and the cost of manufacturing goods.
“The desire of employers and all Kenyans is to see a significant reduction in energy prices, including the pump price of fuel. The government needs to work on this. We hope that the government will look at other factors that are pushing up the pump price and ensure that the increase in VAT does not translate into an increase in the pump price of fuel. The increase in energy prices is very regressive for the economy,” FKE said.
The association said it has been engaging the government on various provisions in the 2023 Finance Bill ‘to ensure that we get win-win policy directives’.
“We stand for social dialogue and our prayer is that we will continue to engage until we have a business environment that supports the growth of businesses to create jobs and wealth for our country,” FKE said.