Promoting Local Sourcing- Benefits and Challenges of the 5% Surtax Charge

Promoting Local Sourcing- Benefits and Challenges of the 5% Surtax Charge

 

The Manufacturing sector has been aptly identified as the engine for economic growth in various national development policy documents, including but not limited to, the Seventh National Development Plan, the National Export Strategy and the Job Creation and Industrialization Strategy. In view of the nation’s overarching vision to enhance the manufacturing sectors contribution to 20% of GDP by 2030, the Ministry of Finance introduced through the 2016 budget speech a 5% surtax charge on selected goods (SGS) in efforts to deter the importation of products that are locally manufactured, thereby promoting the domestic procurement and consumption of locally produced goods.

The Association commends the Ministry on its efforts to foster and support the development of the manufacturing sector. In addition, we are pleased with the amendments made to the SGS list in 2018 and the removal of certain key raw materials from the list attracting the 5% surtax. However, the implementation of the surtax has further highlighted the need for greater consultation on inputs that should be attracting the 5% surtax. This observation arises from a number of submissions received from members who have been negatively affected by the implementation of the surtax, which has resulted in the costs of production increasing exponentially.

In order to reduce the negative impact of this measure on local producers, there is need to ensure enhanced consultation prior to amendments to the Customs and Excise Bill being enacted and implemented, as well as the development of a robust mechanism within which the Association can promptly identify inputs that members procure which are locally manufactured and locally sourced, and inputs that are not locally manufactured and therefore cannot be locally sourced. We take this opportunity to commend the Ministry of Finance for the adoption of a flexible mechanism to address any anomalies in the application of the surtax as lobbied for by the Association in its 2018 National Budget Proposals. We trust that the submissions made by the Association for the removal of the surtax on certain products will promptly be acted on, and costs incurred by members as a result of the erroneous application allocated to payments for future imports.

Ultimately, this measure if administered correctly has the potential to effectively foster domestic industrial growth by promoting local sourcing of inputs, and increasing local production. Local manufacturers of local inputs are therefore encouraged to ensure that the quality of their products meet international standards in order to promote the production of high quality finished products. This in turn would translate to increases in domestic employment and sustainable economic development.