Beer prices to change every three months, starting July

“The value of locally manufactured goods for purposes of levying ad valorem excise duty shall be the ex-factory selling price except in the case of beer and wine, where the value shall be the retail selling price as determined by the regulations,” read the amendment to Section 127c of the Customs and Excise Act.

The finance minister added that in the cases where the products are sold directly to consumers from the factory, the RSP will be the amount paid by the consumer. Where new brands are being introduced into the market, the manufacturer will declare the maximum RSP to the commissioner.

Beer and wine distributors were in the past not captured in the excise duty bracket, allowing them a free hand in setting their mark up costs once they bought stock at the factory. “The increase in price margins between factory price, dealer selling price and retail price with beer is quite high, justifying the levy at the final stage.” said Ashif Kassam, the Managing Partner at RSM Ashvir, an audit firm.

Tax experts said that other than the inevitable increase of the price of beers and wines, implementation of the law could prove challenging.

They say that if the Kenya Revenue Authority (KRA) settles on an average regional retail price —similar to what is done when setting monthly fuel prices — a problem could arise since retail prices vary widely. For instance, the same brand of beer or wine retails at different prices in various bars in the city – at times even those adjacent to each other.

The disparity gets bigger farther away from the Central Business District, with bars located in estates and upcountry having much lower prices.
Nikhil Hira, a partner with audit firm Deloitte, says the criteria could further complicate the pricing formula.

“Will the average price of these products also include prices sampled from five star hotels whose prices are much higher?” posed Mr Hira, adding that no two regions had the same pricing structure.

Mr Hira suggested that one way of actualising the new system was setting a retail price structure based on volumes of products sold. In last year’s budget, the then finance minister Uhuru Kenyatta imposed a fixed excise tax of Sh70 or 40 per cent a litre, raising malted beer tax by five shillings (or Sh2.50 a bottle) from previous Sh65 and that for non-malt beer by Sh15 from Sh55.

pmutegi@ke.nationmedia.com