Revised Standards Levy risks stifling MSMEs growth

The Standards Levy constitutes a mandatory charge remitted by manufacturers to Kebs to finance its activities on the enforcement of product standards, testing, and certification. It is calculated at 0.2 percent of a company's monthly customs value (net of Value Added Tax, excise duty, and applicable discounts).

Previously, the levy was assessed based on 0.2 percent of the ex-factory price, subject to an annual maximum of Sh400,000. The current regulation revises this annual cap to Sh4 million for the initial five-year period (2025-2030), increasing it to Sh6 million from 2030-2035. Companies with an annual customs value below Sh5 million retain their exempt status.

While raising the cap might seem like a straightforward way to generate more revenue for Kebs, I'm not opposed to new levies in principle. However, when you dig deeper, this specific change creates a regressive system that unfairly disadvantages SMEs.

The bigger your company, the lower your effective levy rate. Mid-sized SMEs end up paying a higher proportion of their customs value than large corporations do.

Micro, Small, and Medium Enterprises (MSMEs) are Kenya's primary engine of job creation, employing over 14.9 million people, approximately 85-90 percent of all non-farm workers, and generating over 90 percent of all new annual private sector jobs.

Despite this vital economic role, MSMEs lack a powerful, cohesive voice in national policy discussions, unlike large corporations. This fragmentation often results in the implementation of policies, such as the recently revised levy with an expanded scope that now includes SME-heavy sectors, which fail to consider their unique operational challenges.

The introduction of an annual cap on the customs value-based levy creates a significant disparity between SMEs and large corporations.

Consider two hypothetical cases: an SME with an annual customs value of Sh2 billion and a large corporation with a value of Sh100 billion, a 50X difference. Without the cap, both would pay the full 0.2 percent rate, resulting in the SME paying Sh4 million and the multinational paying Sh200 million.

However, the new annual cap of Sh4 million dramatically alters this scenario. The SME pays the full Sh4 million, which represents the complete 0.2 percent rate at Sh2billion turnover. In contrast, the large corporation, despite its much larger customs value, also pays only the capped Sh4 million at Sh100 billion. This reduces its effective rate to a negligible 0.004 percent.

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The net effect is that the SME fully shoulders the intended 0.2 percent financial burden, while the large corporation receives a massive 98 percent discount on the amount it would proportionally owe (paying Sh4 million instead of Sh200 million).

This "variable geometry" taxation means companies of vastly different sizes contribute the same maximum amount. This can be likened to charging the same flat toll fee for a small motorcycle and a fully loaded commercial truck, where the smaller entity bears a disproportionately higher relative cost.

The government's claim that its tax exemption shields MSMEs is misleading. The exemption, which applies to MSMEs with annual turnovers of less than Sh5 million, only covers micro-businesses with a meagre Sh13,700 in daily customs value.

This threshold is far too low to genuinely protect true, job-creating SMEs, instead benefiting only the smallest operations like kiosks or one-person workshops.

Genuine SMEs, which are responsible for significant employment and have customs values in the hundreds of millions, are compelled to pay the full 0.2 percent tax up to the cap.

The true consequence of this policy is that these vital, job-creating enterprises face increased operational costs. This will inevitably lead to reduced competitiveness against larger rivals, resulting in job losses and higher prices for consumers.

To truly address the unfairness of the current levy, policymakers must consider comprehensive reforms that ensure a more equitable and progressive system. Introducing tiered caps or progressive rates would compel larger companies to contribute proportionally more, perhaps through higher caps for ultra-large firms or a sliding scale for customs values.

Furthermore, raising the exemption threshold significantly, to a range of Sh 50–100 million annually, is crucial to protect genuinely growing SMEs and incentivise formalisation.

Mid-sized firms could also benefit from temporary relief, such as a phased introduction of higher caps or rebates for local investment. Crucially, the voices of SMEs must be strengthened and their concerns heard alongside big business lobbies.

Finally, by ring-fencing the levy revenue to directly support SMEs through subsidised services like testing, training, or export assistance, the levy would transform from a perceived tax burden into a vital investment in the growth of the SME sector.

Kenya needs a strong manufacturing base to achieve Vision 2030 goals. A fairer Standards Levy would level the field, protect the SMEs that create most of our jobs, boost local firms, and ensure larger corporations pay their fair share. It's time for dialogue between the government, Kebs, manufacturers, and SME representatives to refine this policy before it stifles the very growth it aims to support.

The author is CEO, Visible Industries, an Independent Board Member at MSEA and a former CEO at KAM