The devilish cost of doing business in Kenya

BY DENNIS NDIRITU

The recent years have witnessed a big slump in the economic sector in the local scene. Despite various reports pointing at the improved ease of doing business, there are still numerous challenges facing the private sector. 

The government is seen to be hell bent on stifling growth of the private sector instead of creating an enabling environment for entrepreneurship to thrive. Instead of proposing increased taxes in the Income Tax Bill, for example, the Government should focus on helping companies to compete in an environment of practicable and predictable legislation to allow them to grow their earnings.

The recent developments paint a gory picture of business. Owners of alcohol giant Keroche Industries Ltd Tabitha Karanja and her husband Joseph Karanja were arrested in Naivasha after the brewer was accused of Sh14 billion tax evasion. Though the matter is still in court, the Office of the Director of Public Prosecution is yet to table concrete evidence in support of the charge. That the Department of Criminal Investigation is involved instead of the erstwhile tax tribunal is also telling.

This is a dangerous trajectory as there is need to protect local businesses and what better way than to encourage a tax system that enhances compliance while appreciating the economic realities that businesses operate in. Ignoring this business reality may only lead to complete compliance but leave half the industries closed

Recently, the National Transport and Safety Authority (NTSA) suspended SWVL and Little Shuttle Bus Hailing Services in Nairobi. The authority claimed the two services were illegally operating shuttle services without the required PSV licenses. NTSA in a statement noted that the vehicles under these hailing app companies acquired Tours Service License (TSL) but were engaging in commuter service within Nairobi, therefore contravening the terms of the TSL. To make it worse, the two companies were yet to contact the Authority thus showing no intention of operating as commuter service providers coupled by their non-registration of their vehicles with the authority as required by Section 26 of the Transport and Safety Act No. 33 of 2012.  

While NTSA cautioned that the services would only continue operation upon compliance with Passenger Service Vehicle (PSV) regulations, it remains unclear what’s going to happen with swvl, while little shuttle having shut down their service. 

It cannot be ignored that the two companies, swvl and Little Shuttle are seen to have succeeded in disrupting Nairobi’s commuter transport system, much to the chagrin of the matatu cartel. Swvl and little shuttle allowed riders to book a seat and board at specific hours in dozens of routes across the capital using clean and quality vehicles. Since launching pilot phases in January, both companies have quickly scaled their operations, with swvl injecting $15 million into the market in August. In Egypt, swvl is facing off with uber, which launched its first global bus service in Cairo last year and plans are in the pipeline to offer its bus system to Lagos. Perhaps NTSA should have approached this with some restraint, inviting the companies to comply within a reasonable period to avod a disruption of the very popular transport system. The move definitely deals a huge blow to the app-based hailing services both of whom started operating bus services in Nairobi this year and have looked to disrupt the unruly and colorful matatu bus system used by tens of thousands daily. The companies are further tied from seeking redress through the judicial system since the courts will be reluctant to issue orders perpetuating an illegality.  

Going by the dwindling profits over the years of the listed companies on the Nairobi Securities Exchange and the increased layoffs from companies as a handful dominate the corporate scene, many chief executive officers continue to cite red tape, corruption and ever-changing legislation among the factors that complicate the business environment.

While the 2017-2018 period was problematic due to an extended electioneering period, it was not in question that both the national and county governments made it worse for businesses by delaying to honour payments for goods and services supplied. This was made worse by the recent impasse between the National Assembly and the Senate over the Division of Revenue Bill, which was definitely bound to delay disbursement of cash to counties. Numerous small businesses have in the past complained that payment is unpredictable when doing business with the Government, which has ultimately not only hurt businesses but also stifled growth. 

It is critical to understand that factors such as political stability, strong regulations and predictable taxation regimes need to be maintained at optimum as they are vital ingredients for economic growth keen on attracting and retaining investment. As it stands, many companies continue to face tax disputes with Kenya Revenue Authority (KRA) and other regulatory bodies such as NTSA, a pointer to our defective regulatory regimes and the self sabotage that hinder innovation. The money and hours spent in litigation could be more useful in generating revenue

Further, the corruption menace, estimated to have gobbled up Sh7 trillion and counting should be uprooted from the business environment to ensure a level playing ground, if the economy is to thrive. Every entrepreneur wants  an environment in which they can compete favorably based on merit with ease of access to licenses without incurring additional and unexplained costs.

Only by addressing such key concerns can the private sector thrive and the economy boom. As it stands, we are our own enemies.  

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