The Kenya Bureau of Standards (KEBS) has announced a new monthly levy aimed at small traders, including tailors and photocopiers engaged in large-scale production. According to a recent KEBS notice, these traders will now be required to pay a minimum of Sh1,000 per month, with the annual fee not exceeding Sh400,000. This announcement comes as a reminder of the existing Standards Levy, outlined in the Standards Levy Order of 1990, which mandates each manufacturer to pay a monthly levy calculated as 0.2 percent of the ex-factory price.
Understanding the Ex-Factory Price
The term “ex-factory” refers to the price of goods at the point of production, excluding additional costs such as transportation, insurance, or handling. When products are sold ex-factory, the buyer assumes responsibility for logistics and financial obligations related to transporting the goods from the factory to their final destination. This pricing model places a significant burden on buyers but is now a crucial factor in determining the levy payable to KEBS.
Impact on Micro, Small, and Medium Enterprises (MSMEs)
Micro, Small, and Medium Enterprises (MSMEs) are also required to comply with the Standards Levy Act. Activities typically associated with MSMEs, such as tailoring, weaving, knitting, and photocopying, are now categorized under manufacturing. The Standards Act defines “manufacture” broadly, encompassing activities like production, processing, treatment, installation, testing, operation, and use. This wide-ranging definition means that many seemingly simple activities are now subject to the levy.
Record-Keeping and Compliance
Manufacturers, including those in the MSME sector, will need to maintain comprehensive records of all transactions that could affect the levy payable. These records must be available for review upon written request by KEBS. The rigorous documentation requirement is intended to ensure transparency and compliance with the levy.
Exemptions and Penalties
There are some exemptions under the Standards Levy Order. According to Maurice Mwaniki, PwC’s Associate Director for Indirect Taxes, manufacturers whose ex-factory production does not exceed Sh200,000 are exempt from paying the levy. However, those who fail to comply with the levy requirements face penalties. Non-compliance is considered an offence, and late payments incur an additional charge of five percent of the amounts due per month or part of a month.
Sector-Specific Implications
The new levy impacts a wide range of sectors, including food and agriculture, chemicals, construction, textiles, and engineering, among others. In the food and agriculture sector, activities such as processing beverages, prepackaging foods, and meat processing are considered manufacturing. Similarly, in the chemical sector, activities like printing, publishing, and producing organic chemicals and fertilizers fall under the manufacturing category.
Conclusion
KEBS’s new levy aims to standardize manufacturing practices across all sectors, including small traders and MSMEs. While the minimum levy of Sh1,000 may seem manageable, the broader implications of compliance, record-keeping, and potential penalties present significant challenges for small business owners. As the implementation date approaches, businesses must familiarize themselves with the requirements and ensure they maintain the necessary documentation to avoid penalties. The levy will be payable through the iTax system, specifically the Standards Levy Account, by the 20th of the month following the month of manufacture. This new directive underscores the importance of regulatory compliance in maintaining industry standards and supporting Kenya’s economic growth.
