Senator Keg tax cut hands sorghum farmers lifeline
EABL says it will review contracts with the growers after Treasury clarification. PHOTO | FILE
What you need to know:
The excise tax amendment was not made through the Finance Act as is normally the case for new laws that have a financial implication on the national budget.
Beer maker East African Breweries Limited (EABL) is set to renew the contracts of about 20,000 sorghum farmers after reduction of excise duty payable on Senator Keg, which is mainly brewed from the grain.
President Uhuru Kenyatta on Friday signed into law the Alcoholic Drinks Control (Amendment) Bill 2015, setting the excise tax cut (remission) at 90 per cent from the current 50 per cent for beers manufactured using at least 75 per cent locally-sourced sorghum, millet or cassava.
Sales of Senator Keg — an EABL low-cost beer manufactured using sorghum — dipped sharply after introduction of a 50 per cent excise tax in October 2013, forcing the brewer to suspend most contracts it had signed with farmers.
“This is really welcome news and a big win for the sorghum farmers in the country,” said Eric Kiniti, the corporate relations director at Kenya Breweries.
The brewer, which has been lobbying to have the tax cut raised, says it is now awaiting clarity from the Treasury on implementation of the new law before reviewing the farmers’ contracts from July when EABL’s financial year begins.
The excise tax amendment was not made through the Finance Act as is normally the case for new laws that have a financial implication on the national budget.
“We are still seeking clarity from the Treasury on this amendment and will closely monitor to gauge the full effect of the new pronouncement. When the new law takes effect, we shall react accordingly as far as contracts are concerned,” said Mr Kiniti.
The tax protected Senator Keg recorded quick growth on its launch in 2004 as a cheap beer meant to lure low-income earners from consuming illicit and in most cases unhealthy brews.
The 50 per cent excise tax charge, through which government sought to raise Sh6.2 billion, led to a doubling of prices and a sudden slump in sales as low-end consumers dropped the beer.
Senator Keg’s contribution to EABL’s volumes during its peak was over 10 per cent but this share has since dropped to less than 4 per cent following the higher taxation.
The depressed sales saw thousands of Senator Keg outlets shut down with EABL, by August last year, accumulating 13,000 tonnes of sorghum which it said was enough to sustain Senator Keg production for three years.
This excess stock led EABL to downscale its demand from farmers and announce that it would not be renewing about 20,000 contracts because it did not have need for the grain.
A study conducted by Tegemeo Institute indicates that farmers’ forgone income from sale of sorghum to EABL in the 2013/14 financial year was Sh180 million, while assemblers lost Sh78 million revenue from bulking and sale to the brewer.
Following the decision to revise the excise tax, EABL says it will not continue with the current contracts while seeking to recruit more farmers if demand soars.
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