BAT and Mastermind Tobacco have sharply disagreed over taxation method. Photo/FILE
Kenya’s main cigarette makers have differed over a new taxation method proposed by World Health Organisation (WHO) and the ministry of Public Health.
While BAT supports the introduction of a single regime where all cigarettes are taxed at a uniform rate, Mastermind Tobacco wants the four-band tax formula retained.
This comes as the Treasury races to put the final touches to the June Budget.
The four bands consider whether they were soft or hard cap, filter or non-filter and based on value.
Last December, the Finance Committee of Parliament amended Finance Act 2010 to eliminate an earlier inclusion of the length as a determinant which would have placed Mastermind’s Supermatch and BAT Sportsman at same tax level.
BAT in reaction reduced its price from Sh95 to Sh70, shifting the brand from its traditional class C to Supermatch’s less taxed B, causing a major revenue loss to both company and taxman—estimated at more than Sh2 billion in excise tax alone.
Now Mastermind wants Treasury to stick to the bands set on the basis of ex-factory price of 2004 and terms BAT’s Sportsman shift irregular.
But on Thursday, BAT said the law stipulated tax was based on retail price and they were complying.
“It would be fallacious to attempt to reverse the amendment, or restructure the existing system, with a view of reversing the revenue loss, because the loss does not exist. The problem is lack of an effective administration of the system, by failing to enforce the law as it is,” says a petition sent by Mastermind to Treasury.
WHO and the ministry are concerned about the health and want higher taxes to prevent young people from picking the habit as well as discourage smokers.
Mastermind who say their tax payment and revenue have remained constant, points out that KRA, which raised the alarm over falling tobacco revenue, should collect taxes using legal bands.
“The costing statistics which made the brand to be classified have not changed. Other brands of the same class are still sold and classified under category C.”
But BAT’s area head of corporate and regulatory affairs Joe Muganda on Thursday maintained the firm was obeying the law.
“We do not create the law. We read it as it is and apply as written. Why should someone try to interpret it their own way?” he asked.
While Mastermind opposes the proposed single regime, exclusively reported by Business Daily and re-classification of bands, BAT’s is questioning the rate at which the tax will be levied.
Every brand, disregarding physical description or stated value is supposed to attract equal tax.
Cigarettes are normally taxed per 1,000 pieces or a mille. Sportsman, BAT’s and Kenya’s most popular brand, shifted from C band which attracts Sh1,500 per mille to Supermatch’s B attracting Sh1,000.
The Mombasa Road-based Mastermind says Treasury and KRA have failed to act on their complaint over what they call predatory pricing and have filed a complaint with Price and Monopolies Commission.
While its basic claim is that the retail prices referred to in the Finance Bills is in reference to the ex-factory prices which cannot be manipulated, BAT maintains the reference should not be interpretation and recourse is in going to court, said Mr Muganda.
Mastermind says the proposed WHO single regime is meant to push price of cigarettes and encourage smuggling but BAT believes it will curb the vice, which is estimated to be worth Sh20 billion annually.
Attempts to get comments from KRA and Treasury officials did not bear fruits.
