State must rethink cement sector taxes

Wednesday, May 22nd, 2024 06:00 | By
Image used for illustration. PHOTO/Pexels
Image used for illustration. PHOTO/Pexels

Kenya’s cement production and consumption figures paint a worrying picture of the sector’s health as the government is pushing to increase the housing deficit as a national priority.

The latest data shows that cement production, a key indicator of demand, decreased from 9.791 million tonnes in 2022 to 9.616 million in 2023, while consumption declined from 9.494 million tonnes to 9.20 million over the same period.

Although exports to Uganda and Tanzania increased significantly, exports to other countries saw a notable drop, and cement imports rose from 29.8 thousand tonnes in 2022 to 34.2 thousand in 2023.

These shifts indicate underlying challenges that warrant close attention, particularly in taxation policies, and call for local production and consumption to be accelerated. According to the 2024 Economic Survey, the construction sector registered growth of 3 percent in 2023, compared with 4.1 percent in 2022, driven primarily by government expenditure on the Affordable Housing Programme, road maintenance by the Kenya Roads Board, and loans from commercial banks.

The completion of 3,357 housing units by the State Department for Housing and Urban Development and the increase in building plan approvals from Sh162.5 billion in 2022 to Sh220 billion in 2023 underscore the sector’s potential. However, the rise in cement prices from Sh520 per 50kg to over Sh800, a 60 percent increase, directly contradicts the affordable housing policy, a key initiative of President William Ruto’s administration.

It must be remembered that the Exports and Investment Levy was introduced through the Finance Act 2023, which imposed a 17.5 percent tax on clinker and metal products and a 10 percent tax on packaging paper products, supposedly to protect local industries.  But this move sparked controversy, with manufacturers arguing that the levy effectively forced them to purchase materials from only one manufacturer, potentially creating a monopoly. The resulting business environment has seen an increase in production costs, which has led to higher prices for consumers, undermining efforts to make housing more affordable.

Given the critical role of the cement sector in Kenya’s construction industry and overall economic health, the taxation policies affecting this sector must be re-evaluated.

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