EABL opens talks with taxman over proposed excise duty
Workers at the East African Breweries Limited. EABL, is in talks with Kenya Revenue Authority over plans to tax non-malt alcohol. File
Beer maker, EABL, is in talks with Kenya Revenue Authority over plans to tax non-malt alcohol, which could increase retail prices of the low-end Senator Keg brand.
The Standard Investment Bank (SIB) revealed news of the ongoing talks in a research note sent to its clients Tuesday, quoting management of East African Breweries (EABL).
SIB said the management of Kenya’s largest brewer had, in an analysts’ briefing, indicated that it could be in talks with the government concerning taxation of non-malt beer, whose sales volumes reportedly increased by 60 per cent in the past nine months.
“We got a sense that management were engaging the government, which could be considering some taxes on non-malt beer in the upcoming June 2012 budget,” said SIB in the research note, adding that beer volumes in the country had increased, driven by consumption of non-malt beers.
The KRA commissioner general, John Njiraini, had last week indicated that the shift by consumers to non-malt beers could have slowed growth of excise tax collections.
He said that collections of indirect taxes had dropped by 3.3 per cent to Sh97.576 billion between July 2011 and March this year.
Indirect taxes mainly consist of consumption based taxes - value added tax (VAT) and domestic excise duty - and includes collection of land rent, stamp duty and agency taxes according to the revenue authority.
Domestic VAT declined by 10 per cent, as withholding VAT was discontinued in July last year to clear the accumulation of refunds.
Sales of non-malt beers, which are targeted at the lower end of the market and which do not attract taxes as the government has been using them to discourage the use of illicit beers, rose by 60 per cent according to KRA, indicating that they could be gaining popularity among mainstream beer drinkers. “Performance of the tax was undermined by shifting consumption patterns for beer with increasing preference for non-malt containerised brands,” said Mr Njiraini.
He said that in the third quarter of the 2011/12 fiscal year the authority collected Sh160.4 billion up from Sh141.4 billion over a similar period the previous fiscal year.
Eric Musau, a research analyst at SIB said that even if the government would consider taxing non-malt beers, it would not be significant so as to make sure that they do no lose gains made against illicit brews.
He said if the government applied such a tax, the impact would be minimal on EABL’s revenues and profit considering that a high tax could make the beers too expensive for lower end drinkers.
