A recent meeting convened by the Kenya Sugar Board in Nairobi has sparked controversy over the country's sugar sector, with claims of unfair taxation and protectionism. The meeting, attended by stakeholders, aimed to discuss the availability and use of locally refined white sugar. However, critics argue that the government's tax regime is shielding one private enterprise, Mombasa Sugar Refinery Limited (MSRL), while imposing crippling costs on Kenya's wider food and beverage manufacturing sector.
The government has imposed a Sh40 per kilogramme levy on imported refined sugar used as an industrial input, with the total burden approaching 70 percent when including the Import Declaration Fee, Railway Development Levy, and import duty. This has significant consequences for manufacturers, who will eventually pass the costs on to consumers through the price of bread, beverages, confectionery, and dairy products. The tax regime has raised concerns about competitiveness and survival for manufacturers, who employ tens of thousands of Kenyans and buy from local farmers.
Mombasa Sugar Refinery Limited, owned by the Chatte family, appears to be exempt from this tax regime. The company imports raw bulk sugar, typically from surplus-producing countries such as Brazil and South Africa, refines it locally, and sells it under government-granted excise exemptions. Critics argue that this is not "local sourcing," as the raw material is imported, and only the refining process takes place locally.
The advantage enjoyed by MSRL has raised questions about the government's priorities in protecting Kenya's domestic value chains. The company's exemption from taxation has been criticized for redistributing market power and financial rents from established, tax-paying manufacturers to a protected processor. Furthermore, not a single additional shilling of this arrangement goes to a cane farmer.
MSRL's capacity utilization has also been questioned, with the company reporting sales of only 7,700 metric tons in its first four months of operation, against an annual capacity of 150,000 tonnes. This translates to roughly 15 percent of the capacity theoretically available during those four months. The low capacity utilization has raised concerns about the effectiveness of the government's protectionist policies.
The conduct of the Sugar Board during the meeting has also been criticized, with the regulator appearing to advocate for MSRL and appealing to established manufacturers to demonstrate patriotism by buying from the company. Critics argue that patriotism is not a procurement specification, and industrial manufacturing requires consistent quality, strict ICUMSA specifications, reliable supply, and competitive pricing.
A straightforward solution to the issue has been proposed, with calls for equal treatment for registered food and beverage manufacturers. The Kenya Sugar Board and the Kenya Revenue Authority have administered controlled industrial-use arrangements for years, and the machinery for distinguishing sugar consumed as an industrial input from sugar intended for ordinary consumption already exists.
Key points
- The government's tax regime has been criticized for shielding one private enterprise, Mombasa Sugar Refinery Limited, while imposing crippling costs on Kenya's wider food and beverage manufacturing sector.
