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Economy

Alcohol, cigarette set to cost more

Treasury secretary Henry Rotich. FILE PHOTO | NMG
Treasury secretary Henry Rotich. FILE PHOTO | NMG 

The Treasury has doubled the excise stamp fees for cigarettes, wines, and spirits to Sh2.80 per sticker, setting the stage for an increase in retail prices by similar margins as manufacturers of the products pass on the costs to consumers.

The tax has traditionally been charged at a flat rate of Sh1.50 for each retail unit (bottle, can or packet) — highlighting the huge cost impact for consumers.

The new rates took effect on Monday last week after Treasury secretary Henry Rotich used his discretionary powers to roll out the tariffs before the passing of the Finance Bill as required by law.

“The Cabinet secretary for the National Treasury orders that all provisions of the Bill relating to taxes or duties shall have effect as though the Bill were passed into law,” Mr Rotich said in a gazette notice.

Analysts at London-based frontier market firm Exotix attributed the increase in stamp duties to Kenya’s need to plug the fiscal deficit in the budget for the coming year, estimated at six per cent of GDP or Sh523 billion.

But it is good news for consumers of fruit juices, carbonated water, all non-alcoholic beverages, and cosmetic products whose excise stamp duty fee has been halved to Sh0.60 per unit.

The rate for mineral water now stands at 0.50 per stamp, according to the Kenya Gazette notice dated March 30, 2017.

Beers as well as spirits with less than 10 per cent alcohol content will continue attracting Sh1.50 in excise stamps fees.

The Kenya Revenue Authority (KRA) is collecting the new stamp fees through an electronic sin tax system rolled out by the Swiss firm SICPA.

The Swiss firm, named in the BAT plc ‘cigargate’ bribery scandal, is rolling out the excise goods management system across 64 companies making excisable goods in Kenya – brewers and makers of soft drinks, bottled water, juices, and tobacco products.

The five-year contract provides for SICPA to supply 12.9 billion excise stamps, KRA boss John Njiraini told the National Assembly last year.

Those exempted from paying excise stamp fees are excisable goods manufactured for export markets, goods supplied to the Kenya Defence Forces and the Police Service, or those delivered to a duty-free shop.



PHOTO | BD GRAPHIC
PHOTO | BD GRAPHIC

Mr Rotich promised in his Budget Speech to set the charges for excise stamps based on the cost of the goods, saying the Sh1.50 flat rate regime had hit low-cost products and low-income earners.

“The uniform charge for the stamps has brought challenges in respect of low-cost products. In order to enhance tax administration, regulations that provide for differentiated prices based on the cost of the product will be gazetted shortly,” the minister said on March 30.

But experts argue that the new rates are not prorated, and still hurt consumers of low-value products.

For example, the excise stamp fee previously made up six per cent of the price of Coca-Cola products based on the recommended retail price of Sh25 for a 300ml bottle of soda.  The new rate now accounts for 2.4 per cent of the retail price.

On the other hand, the flat rate amounts to 1.07 per cent of the selling price of a half-litre bottle of Tusker whose list price is Sh140.

The threat of a fresh round of price increases linked to the hiked excise stamp fees comes barely a week after the government increased excise taxes on sprits and Keg beer.

Excise tax on sprits and all beverages with alcohol content in excess of 10 per cent was increased to Sh200 per litre in this year’s budget from the previous rate of Sh175 a litre, a hike of 14 per cent.

Brewers of low-cost beer from sorghum, millet and cassava are now paying excise at the rate of 20 per cent or Sh20 per litre, double the previous 10 per cent or Sh10 per litre.

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