KRA intensifies war with manufacturers over excise tax

The Kenya Revenue Authority (KRA) has intensified its war with manufacturers over the payment of excise tax, putting at risk millions of jobs and billions of shillings in tax revenues.

The Kenya Association of Manufacturers (KAM) – the industry lobby – on Wednesday said the taxman had denied more than 80 per cent of its members the excise tax licence, effectively prohibiting them from manufacturing and selling excisable goods.

The industrialists blamed the taxman for failure to properly coordinate implementation of new legal requirements, causing delays in compliance.

“Manufacturers, who are awaiting the processing of their applications, are not allowed to sell any goods in the interim period,” said KAM chief executive Phyllis Wakiaga, adding that inability to trade in the interim period would cause the companies huge losses as well as deny government revenue.

KAM said in a statement that the taxman’s new directive had caused panic across the industry after retailers promised to remove their goods from the shelves to avoid falling foul of the law that prohibits the sale of goods from unlicensed manufacturers.

Mrs Wakiaga said such a move could lead to potential loss of business and rebound negatively on the taxman’s revenues.

KRA is accused of introducing new requirements for issuance of excise tax licence at the beginning of the year after some companies had already submitted their applications, forcing them to withdraw and begin the process afresh.

Mrs Wakiaga said the new demands included additional paper work such as letters from the county government and Credit Reference Bureau (CRB), which take time to obtain.

READ: KRA hits Keroche with Sh1 billion excise duty claim

KAM said that the taxman also wants companies to renew their excise bonds, meaning the applicants must cancel existing excise bonds.

Mrs Wakiaga argues that introduction of such new measures should come with a grace period of at least three months to avert disruption of business as companies work towards complying with the application requirements.

The manufacturers said the new application procedure is probably suited for new businesses or those introducing excisable products but not existing companies that have been trading for years.

KRA has licensed only 85 manufacturers and 48 importers to sell their products, according to a newspaper advert published last week, blocking hundreds of others from trading.

KAM has more than 850 members in a sector that contributes about a quarter of the country’s Gross Domestic Product (GDP) and employs over a million people.

The government aims to increase tax collections to fund several infrastructure projects, including a new railway, and pay for new local administrative structures created in 2013.

KRA collected Sh1.001 trillion in the fiscal year that ended in June, a 3.86 per cent increase from the previous year, according to the Treasury.

The taxman is currently embroiled in a legal tussle with Keroche Industries over the tax licence in a battle that has threatened to stall the brewer’s operations.  

The war began after KRA refused to renew the manufacturer’s excise tax licence, accusing it of stating incorrect excise duty rates while filing returns.

KRA says Keroche did not attach copies of its tax compliance certificate and those of its directors while applying for renewal of its licence in January.

It has now ordered the brewer to cease production of any taxable goods, and to return unused excise stamps.

Keroche last week moved to court seeking to compel the taxman to reverse its decision.

It insists that KRA was yet to issue it with tax compliance certificates at the time it applied for renewal of the licence making it unfair to demand that the same be attached to the application.

On Monday, the court temporarily stopped KRA from shutting down the brewer’s business.

KAM warned that failure to reverse the new requirements would cause excise revenue to drop this year, reversing the growth of 11.2 per cent witnessed in 2014.