Textile producers in Kenya want EPZ firms to be barred from selling their products tax-free in the local market since it poses unfair competition to non-EPZ firms. EPZ firms in Kenya are permitted to offload 20 per cent of their annual production duty-and-VAT free in the domestic market.

Non-EPZ manufacturers find it difficult to compete with the highly incentivised products from EPZ manufacturers. Among other incentives, firms operating under EPZ enjoy a 10-year corporate income tax holiday and a 25 per cent tax rate for a further ten years thereafter, a ten year withholding tax holiday on dividends and exemption from VAT and import duty.

These incentives are not available to other manufacturers who have to pay corporate taxes at the standard rate of 30 per cent and VAT at 16 per cent. Exports of non-EPZ firms to East African Community markets have fallen. EPZ-based manufacturers employ 52,000 people while the local sector directly employs about 21,000 people in the formal sector and more than 30,000 informally.

Illicit trade is a major threat to the textile and apparel market in Kenya. One suggestion for combating illicit trade is by introducing a blanket taxation for 20-foot containers and 40-foot containers of textile and apparel products.