Soda ash maker seeks EPZ status to revive factory

Corporate News

  

Tata Chemicals Magadi workers harvest soda ash from Lake Magadi. The company plans to lay off 400 workers. Photo/FILE

 

By MUGAMBI MUTEGI, pmutegi@ke.nationmedia.com

In Summary

• Tata says it could save up to Sh500 million per annum in tax deductions that are allowed for companies classified as EPZ firms.
• The firm has written to the Industrialisation secretary as a follow-up to a recent visit by representatives from the special economic zone.
• The EPZ status is ordinarily granted to companies that export at least 80 per cent of their produce outside East Africa.

Soda ash producer Tata Chemicals Magadi (TCML) has petitioned the government to grant it an Export Processing Zone (EPZ) status, arguing that the resultant tax savings could help it revive a factory it shut down earlier this year.

Tata says it could save up to Sh500 million per annum in tax deductions that are allowed for companies classified as EPZ firms.

The Indian-owned firm says it has written to the Industrialisation secretary as a follow-up to a recent visit by representatives from the special economic zone.

“We are in discussions with the government to hive off and gazette the loss-making factory as a special economic [zone] but maintain the other one’s normal status,” TCML managing director Jack Muchira said in an interview.

The EPZ status is ordinarily granted to companies that export at least 80 per cent of their produce outside East Africa.

Tata exports about 95 per cent of its produce, soda ash, which is widely used in glass production and manufacture of detergents and cleaning agents.

TCML, formerly known as Magadi Soda Company, closed one of its two soda ash plants mid this year and laid off 221 employees after accumulating losses of Sh15 billion in the years since 2006.

READ: Tata Chemicals to spend Sh1b to lay off 200 workers

Mr Muchira says tax benefits would offset the high monthly energy costs of Sh300 million, which it cited as the main cause for closing down the plant.

“Savings from tax remissions on imports of spare parts, new machinery and raw materials would help offset the factory’s high operating expenses even as we await the government’s promise to lower the cost of power.”

There are currently more than 40 gazetted EPZ areas in the country located in Nairobi, Voi, Athi River, Kerio Valley, Mombasa and Kilifi.

Some of the benefits of being ranked an EPZ firm include a 10-year corporate tax holiday and 100 per cent deductions on new investments in buildings and machinery for over 20 years.

EPZ firms are also exempt from paying VAT and customs import duties on inputs like raw material, office equipment, machinery as well as certain fuels for boilers and generators.

Withholding tax holiday and stamp duty exemptions are also part of the package.

Tata Chemicals says such benefits will see it re-open the plant which was built at a cost of Sh9 billion and which accounts for 70 per cent of the entire company’s energy costs.
 We import a lot of spare parts and machinery and remissions would go a long way in helping us solve the problem we are in,” said Mr Muchira.

The Economic Survey 2014 shows that soda ash earnings last year fell by 5.5 per cent to Sh8.86 billion from the previous year’s Sh9.38 billion, despite the fact that production increased by 4.2 per cent to 468,215 tonnes.

This discrepancy was brought about by a drop in retail prices last year, with the average asking price of one tonne dropping 11.3 per cent to Sh18,790 compared to Sh21,194 in 2012.

The closure of the factory saw TCML join a growing list of Indian companies likes Essar, Sher Karuturi and Bharti Airtel whose businesses in Kenya have run into problems, some to the extent of closing down.