The manufacturing sector is over-taxed and over-regulated, according to the Kenya Association of Manufacturers.

The manufacturing sector is over-taxed and over-regulated, says the Kenya Association of Manufacturers. This is no surprise – business probably always feels over-taxed and over-regulated. But it is not necessarily unjustified.

I cannot go much into whether KAM – in its recent regulatory audit report – does prove that manufacturing is under threat. Their main statistical argument is that manufacturing’s contribution to Kenya’s Gross Domestic Product (the country’s wealth) declined from 11.08 per cent in 2011 to 7.3 per cent in 2024.

However, the Economic Survey 2025, the source of KAM’s figures, also says that manufacturing expanded by 2.8 per cent in 2024. This was mostly because manufacture of food products increased by 4.6 per cent, but non-food products manufacturing grew by only 0.8 per cent (and agricultural production may be very affected by weather, of course). Production of mabati, textiles and clothing, paper products, pharmaceutical products, and rubber and plastics products increased, while cement production and motor vehicles assembly decreased.

My interest here is to ask: can the Constitution throw any light on what the association is complaining about? And – can this report throw any light on the Constitution and how it is working?

The alleged causes

KAM pointed to various factors. It mentions “high and unpredictable taxation”, particularly the affordable housing levy, the Social Health Insurance Fund, higher NSSF rates, increased import duties on raw materials and the railway development levy.

Second was that various agencies have overlapping responsibilities, meaning that a business may have to undergo repeated checks of the same issues.

Counties were particularly mentioned, including for having no “tariff pricing policy” required by law, and for various excessive or unnecessary taxes (like “cess”) and charges.

Too many licences and permits are required; pharmaceuticals and medical equipment businesses require “up to 57 separate licences, fees, and charges”. Some charges must be paid in US dollars – passing the risk of currency fluctuation from the public to the private sector.

Trade in counterfeit goods and substandard goods offer unfair competition to local legitimate manufacturers.

Interestingly, the word “corruption” appears nowhere in the report.

Constitution

The Constitution does not try to dictate political ideologies and tactics. Elected governments must be allowed to govern. Of course they must respect human rights – one of which is fair decision making processes. However, in my view business is not generally entitled to the protection of human rights, which are “to preserve the dignity of individuals and communities and to promote social justice and the realisation of the potential of all human beings” (Article 19(2)).

Sometimes business might consider human rights to be contrary to their interests. Government would argue that the housing levy, SHIF and the NSSF are measures to achieve human rights to housing, and health and social security (Article 43(1)(b), (a) and (e)). This does not mean that all other considerations can be abandoned.

Among other things, “sustainable development” is a national value, and, apart from its environmental aspects, it surely means that the government must work to sustain the country’s economy. And just labelling something “human right” is not enough – we need effective human rights measures.

The government must respect requirements such as those in Article 10 about public participation, transparency and accountability – and good governance.  Excessive regulation and duplication of regulatory measures sound like bad governance. A recent report on “Good tax governance in Africa” says “African governments should aim for transparency, certainty and predictability of tax treatment”.

Such issues are not well suited to resolution through law, of course. But a Constitution is not just about law – it is a political document as well. And KAM is not suing the government.

Devolution

KAM’s highlighting the role of counties brings us to an aspect of the Constitution that is particularly difficult. That is setting out what the national and county governments may do – including in Articles 185 and 186, and Schedule Four on the “functions and powers” of the two levels of government.

One issue (Article 209(3)) is clear: unless national law passed by Parliament specifically allows, counties can only raise two types of taxes. Those taxes are “property rates” and entertainment tax. What is a tax? It’s not a matter of what it’s called. It’s a tax if it is not in return for some goods or services.

“Cess” is a tax. Local authorities used to be able to charge cess. But there is no national law that allows counties to do so. Yet many counties do, as KAM complains, including on transport of goods across county boundaries. There have been several, rather unsatisfactory, court cases.

Charging cess on traffic across county boundaries would clearly go contrary to the objects of devolution. Article 209(5) says that counties when raising taxes or other charges must not prejudice “national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour.”

The County Governments Act requires counties to have a pricing policy for services they offer, that fits within national policy. The Commission on Revenue Allocation produced a model policy for counties in 2024 – a guide for good governance in pricing. Apparently Nairobi was the first to produce its own policy in November last year. 

Fees may also be part of regulation. It is legitimate to charge a fee for inspections, provided that this is for a purpose the government has a responsibility for.

KAM reports various types of charges to illustrate the problems. One interesting one is a charge for vehicle branding, which Nairobi imposes, and increased (for a lorry) between 2020 and 2025 from Sh18,000 to Sh25,000. Presumably this charge is based on the county power to control outdoor advertising. In fact Nairobi charges for all sorts of advertising including sandwich “men”, leafletting, and balloons, as well as wall advertising.

But do they use the vehicle branding charge to control advertising (Schedule Four Part 2 item 3) – or simply to raise money? If the latter only I would say it is a tax. Incidentally, they presumably only regulate vehicles whose owners are based in Nairobi. Nairobi can hardly charge visiting vehicles.

Then there is the duplication. KAM says “NEMA, Directorate of Occupational, Safety and Health Services (DOSHS), and county governments … exercise overlapping authority.”

Looking at the Constitution one must ask: Should NEMA be charging for an Emission Licence (concerned with air quality) when dealing with air pollution is a county responsibility (Schedule Four Part 2 item 3)? Should counties issue effluent discharge permits when water pollution is not a county matter?

If DOSHS legitimately carries out a fire safety audit on the basis that, as a national body, it has the power to deal with Labour Standards (Schedule Four Part 1 Item 13), should a county also issue (and be paid for) an annual fire safety clearance for workplaces – even if county functions include firefighting (Part 2 Item 12)?

This is not the only example of laws being passed without enough care being taken to consider what other laws are relevant and avoid repetition or contradiction – a wider good governance issue.

You can see that the Constitution on the allocation of government powers is not as clear as it might have been. Drafting such provisions is not an easy task – and in many countries with multi-level government, court cases about which governments can do what are common.

And in truth this aspect of the Constitution is not well understood – by politicians, lawyers and judges. It is something new since 2010 and many lawyers have not been educated on this sort of issue, and we lack Kenyan books on the Constitution that deal with it. These things should be sorted out, preferably not through slow and expensive court cases, but through the mechanism that the Constitution requires (Article 189(4)), and that exists: the inter-governmental relations dispute resolution process.

This article was first published by The Star Newspaper

Image: FILE