Excise duty stamp sets stage for fresh consumer price rise

Consumers of excisable goods will pay more when the Sh1.50 excise duty stamp fee and other costs associated with installation of a new sin tax system, manufacturers have said.

Brewers, juice processors, soft drink makers and water bottling firms are up in arms against the new stamp cost whose use the Kenya Revenue Authority (KRA) began in February for beer makers and later this month for soft drinks.

The manufacturers have promised to pass on the costs associated with installing of the so-called excise goods management system to consumers, setting them up for retail price inflation.

The manufacturers argue that they are being forced to spend about $1 million (Sh100 million) to change their manufacturing lines to accommodate the new-generation tax stamp system and have rejected the Sh1.50 charge per stamp as exorbitant.

“The Sh1.50 tax will definitely push the prices of drinks up,” said a manufacturer who spoke on condition of anonymity fearing reprisal from the taxman.

“We have been paying VAT, excise duty, and other levies imposed by Kebs (the Kenya Bureau of Standards). This Sh1.50 is an indirect tax going to individuals’ pockets in Switzerland and KRA. It is a major scam.”

The KRA has contracted Swiss firm SICPA to oversee the rollout of the excise goods management system across 64 companies that manufacture excisable goods in Kenya.

SICPA is the firm that was recently named in a scandal in which cigarette maker BAT allegedly bribed ex-Justice minister Martha Karua to access confidential information regarding procurement of the excise tax stamps.

The tobacco firm allegedly used the information to block a rival firm from winning the lucrative tender, according to Britain’s Independent newspaper.

SICPA, which won the five-year KRA deal in December 2012, has rejected claims that BAT plc influenced its winning of the multi-billion shilling tender.

READ: KRA orders excise stamps for beer packages starting February 1

The deadline for beer manufacturers to start using the new stamps lapsed on February 1, 2016 while non-alcoholic drinks makers have up to the end of this month to instal the new sin tax system.

The system involves setting up a printer along a production line that affixes an excise stamp on bottle caps, Tetra Pak packages and cans. 

SICPA is providing the system but industrialists pay the cost of installation, modifications to processing lines, power supply and Internet connection.

The electronic tax system can be remotely monitored and the new-generation excise stamps can be read by smartphones – a feature the taxman is banking on to weed out grey products from the market and grow revenue.

SICPA is expected to rake in about Sh450 million a day from the contract given the industry’s daily peak production output of 300 million bottles – including glass, PET bottles and Tetra Pak boxes – highlighting the lucrative nature of the tender.

The KRA declined to reveal how much it will be paying SICPA for the rollout of the tax system but said manufacturers will not pay a single cent to the Swiss contractor.

“The Sh1.50 routinely mentioned applies to the statutory excise stamp values. These values are applied as per the existing law,” said Alice Owuor, the KRA’s commissioner of domestic taxes.

The KRA further dismissed the manufacturers’ complaints, saying some factories ran non-standard production lines that made it difficult to enforce excise tax accountability, hence the need for a new system.

“Any modification required by any manufacturer should be looked at against the excise licensing regime and not essentially on the EGMS implementation,” said Ms Owuor.

Manufacturers, however, pointed an accusing finger at Kebs and the Anti-Counterfeit Agency for failing to rein in fake products in the market.

SICPA declined to comment on the ongoing rollout of the new excise tax system, citing non-disclosure clauses in the contract. “SICPA’s actions under this contract are the subject of normal commercial confidentiality clauses,” said the Lausanne-based firm.

READ: KRA’s to introduce excise stamps for juice, bottled water

The security printer specialises in printing banknotes, tax stamps and anti-tamper seals. The threat of a fresh round of price increases linked to the SICPA system comes barely three months after the Excise Duty Act took effect on December 1, 2015.

The law introduced new sin taxes at the rate of Sh30 per litre of beer, kerosene by Sh5.75 a litre, bottled water at Sh7 a litre, and juice at Sh10 a litre.

Factory owners further expressed fears that once SICPA officials are allowed into their production lines, they will threaten intellectual property and conduct corporate espionage.

The KRA is demanding full access to production lines during installation, including stopping lines for set-up.

“They want access to production data banks,” lamented another factory executive. The KRA said such fears have no basis, as the role of SICPA at the factories will purely be limited to installation and system alignment.

SICPA will be responsible for maintaining repairing the system in the event of any outages. Manufactures have also warned that Kenyan products will not be competitive in the EAC region due to increased taxation.

“We want this stopped immediately. We are in the EAC and our products can’t compete with those from our partner States.

‘‘Taxation should be uniform for products that are produced in the region. The advent of excise duty has already cost many companies 30 per cent sales,” said our source.

Industry players sought to know how the machinery will be repaired should it break down, saying SICPA had not appointed local agents.

“There has not been any consultation and public participation. We are being pushed to implement a system we don’t know,” he said.

The push to roll out the SICPA e-tax system comes at a time when the KRA has consistently missed its revenue collection targets.