Economy

New KRA unit sets sights on higher taxes from drinks

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The Kenya Revenue Authority headquarters in Nairobi, which is seeking to raise more revenue from tax stamps on products like water and juices. Photo/File

The taxman is setting up a unit with 300 officers to eventually police water and juice products for tax compliance as it introduces new-generation tax stamps.

In a sweeping measure aimed at raising an extra Sh6 billion, which could particularly hit non-compliant vendors of non-alcoholic drinks, the Kenya Revenue Authority (KRA) has competitively procured the services of a Swiss security print firm, SICPA, for the five-year programme.

Bottled water and ready-to-drink juice vendors — targeted after cigarettes, wines and spirits and beer — have proliferated in the country but without necessarily contributing to tax revenue growth.

They have squeezed soda sales, according to large players like Coca-Cola, due to limited policing by previously resource-starved KRA.

Counterfeits will also find survival in the market a tough call as the taxman moves to add customs excisable goods to the tax bracket.

In a briefing note, KRA said retailers will be criminally liable if they “accept into their premises any products on which tax has not been paid”, which makes counterfeiting a high-risk business in the retail and wholesale markets.

READ: Taxman targets contraband traders with new duty stamps

The KRA unit is expected to hire the first batch of 50 surveillance and monitoring officers by July although the electronic digital stamps should be in the market at the beginning of April.

The stamps, also used under the Excise Tax Stamps Management System for VAT administration, will replace the old ones supplied by Madras Security Printers.

Unlike the heavily faked old ones which will be discarded as users deplete old stocks, the new ones have an invisible readable code, meaning that they cannot be resold to third parties.

On KRA field officers swiping the stamps, the information on the firm issued with the sticker, date of issue, brand and product — which will prevent a common practice of fraudulently substituting expensive products with lower taxed products — will be transmitted real-time to the central server at Times Towers.

Mainstream firm’s employees have minted millions by selling stamps to counterfeiters: in the case of wine, a fraudulent buyer evades tax of at least Sh70 a litre or 35 per cent, fake beers get away with Sh65 a litre while water and juice tax evaders cost the State Sh3 (or five per cent) and Sh7 respectively in excise tax.

“Water and juice stamps are more critical to us because beer excise is mainly controlled by one player who we can easily monitor,” KRA Commissioner-General John Njiraini — who releases his first annual performance results today — told the Business Daily. KRA is under pressure to raise revenue collection to meet higher recurrent and devolved government spending.

SICPA beat a field of security printing firms to clinch the award in December and by the time we went to press the win had not been contested.

Other bidders included three Indian firms Madras, Holistic and Security Printing Press. De La Rue of UK, Authentecs Inc. of US and EDAPS of Ukraine also participated in the tender which had been held up by legal issues since it was advertised in 2008.

The scope this time round is larger though. But Mr Njiraini and procurement chief Grace Murichu said the system was self-funding.

Excisable plants will be required to foot the bill for affixing photosensitive readers (flow meters) on the manufacturing lines to transmit real-time data to KRA servers while in the field officers will be armed with infrared readers.

On Friday, beer and spirits firm Keroche Breweries said it had already installed the flow metre at the production line after its new spirit investment last June though there is no real-time transmission yet. The firm does not expect major cost implications.

“I think it is a good thing and the costs are unlikely to be very high. We will go along with all the new rules KRA sets,” said Tabitha Karanja, the Keroche CEO.

The firm which is currently in the process of increasing beer production is the country’s second largest alcohol manufacturer after East Africa Breweries Ltd.

KRA said the cost of the actual stamp had gone up by Sh0.124 a piece or Sh66.5 million annually. System investments by firms would also cost cash.

“We now don’t have to wait for the declaration of the taxpayer or audit input/output after production,” said Mr Njiraini of the system heavily borrowed from Brazil, one of the most efficient Third World tax collectors where SICPA has a heavy presence.

However, total implementation over the five years will depend on a full ICT rollout in the country as some of the industrial players are in the rural areas.

KRA said it had developed the programme in close consultation with the Kenya Private Sector Alliance (Kepsa), whose members have been heavily affected by counterfeiting, and the Kenya Bureau of Standards.

Fake goods that sell without paying taxes have become a major threat to industrialists and importers, more so distillers and cigarette manufacturers.

“The more electronic government goes the better for the country. This will reduce queues and processes in government offices,” said Kepsa chairman Patrick Obath who happily noted incidence of counterfeiting had fallen since the capture of Kismayu.

“Manufacturers are expected to witness increased sales of tax-paid products which will replace illicit products,” said the commissioner for Domestic Tax-Large Taxpayers Office Pancrasius Nyaga. Consumers would be equally protected.

However, the Anti-Counterfeiting Authority CEO, Stephen Mallowah, said the new stamps can only help in the short-term as technology is dynamic for both authorities and criminals. He noted that when the hologram was introduced, it was believed to be foolproof.

“The idea is to make counterfeiting costly. But for goods which are highly-taxed like cigarettes and alcohol criminals will try to catch up,” said Mr Mallowah.

The tax stamp management is one of the numerous measures adopted by KRA, probably now emboldened by the two per cent agency fee (of the total audited revenue for previous year, now equalling Sh17 billion) that it will be paid by the Treasury.

READ: KRA move to track down rich tax cheats

KRA has also rolled out the iTax system for online tax returns, payments and queries besides starting a unit to pursue landlords for income taxes. Supermarkets have been already been connected real-time to KRA servers.

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