Why I fear for beer factory’s survival

Indications are that the government will be lifting the coronavirus lockdown soon. Yet I fear for the Kisumu Breweries Limited factory, by far the biggest recent investment in the Western Kenya region and which has remained closed since March 23 following closure of bars, if the National Treasury alters the tax regime that made the investment attractive in the first place. In a public notice published on May 29, the National Treasury sent out a notice that it plans to eliminate duty remissions enjoyed by the Kisumu plant.

This factory is the most significant private investment in Western Kenya in recent years. Yet barely one and a half years since it commence operations, a dark cloud looms over its head.

When you give investors tax concessions and attractive incentives- you can influence companies to establish manufacturing plants and factories in a specific region and location.

And where the government has introduced tax concessions and incentives to attract a private investor to establish a manufacturing plant, fairness dictates that government has to maintain predictability in its fiscal laws.

It is unfair indeed, that barely one and a half years after the Kisumu plant started its operations, the National Treasury is now turning around to say that it wants to change the Excise Duty regime that encouraged and led the investor to build the factory in Kisumu in the first place.

We forget that before a manufacturer decides to commit to building a multi-billion shilling factory, the question uppermost in his mind will be the following: if I start an undertaking on the strength of tax holidays announced by the government, how can I be sure that the remissions and concessions granted will continue and be in force until I recover my investment?.

Indeed, the history and origin of the Sh14 billion Kisumu plant was a decision by former Finance minister, the late David Mwiraria.

He was the first to come up with the idea of introducing tax remission for beer made from sorghum, millet and cassava. To enjoy this remission, you have to develop and invest in a comprehensive value chain for these food crops. Originally set at 35 percent, it was gradually increased to 100 percent between July 2006 and October 2013 and later revised to the prevailing level of 80 percent.

The National Treasury has served notice that the remission will now go down to 60 percent.

We pay lip service to the instability of our tax laws. Tax remissions announced today can be amended tomorrow. Worse still, tax policy is framed by revenue-obsessed types – mandarins who believe that collecting more money for the government is more important than pursuing policies that support livelihoods and durable jobs to citizens.

The Kisumu plant should not just be judged by the taxes it pays to the government. It introduced new livelihood options in a region where opportunities for making money have dwindled drastically, especially since the collapse of sugarcane growing and tobacco farming.

The economic impact and livelihood support the Kisumu factory gives to the Western Kenya economy is illustrated by the fact that the company currently has in its stores, 12,500 tonnes of sorghum that it purchased from farmers from last year’s crop.

It is a value chain that includes 2,608 farmers spread across many counties. In the next few years, the Kisumu plant could open new options for hundreds of thousands of farmers.

It is estimated that to run and maintain the Kisumu plant, which has a capacity of a million hectolitres of alcohol, KBL will require nearly 40,000 metric tonnes of sorghum every year

In the last one and half years, the company has been forced to spend billions of shillings in developing a stable and high quality sorghum value chain.

It has had to spend billions to roll out sorghum extension programmes covering multiple aspects, including access to inputs and credit, joint collection centres, mechanisation and contract farming.

Western Kenya needs livelihood options away from sugarcane, tobacco and maize. We forget that the Keg beer value chain also supports the fight against consumption of illicit drinks.

If the National Treasury changes the tax regime that informed the establishment of the factory, the Kisumu plant will eventually die. In the interest of sustaining livelihood options supported by the sorghum value chain in Western Kenya, let us save this factory.