Excise duty key to bridging taxman’s funding shortfalls


A police officer scrutinises alcohol seized from a home in Murang’a during a past crackdown. photo | Martin Mwaura | nmg


  • Funding shortfalls will force the taxman to confront reports of an upsurge in fake excise stamps.

The most significant news coming out of the latest review of the performance of the Kenya Revenue Authority (KRA) is a shortfall in the collection of excise duties during the first six months of the current fiscal year.

Coming against the backdrop of excessive debt and huge revenue deficit, all indications are that this funding gap will now force the taxman to confront reports of an upsurge in fake excise stamps and also the urgent necessity to expand the rollout and enforce the use of the Excisable Goods Management System (EGMS), which has been in operation since 2013.

Supported by the international technology provider SICPA, the system involves the affixing of secure excise stamps on goods at the production site which then allows the tracing and tracking of products and monitoring of production volumes.

As expected, implementation of the system in Kenya has elicited substantial resistance from some of the affected industries.

No manufacturer likes a monitoring system built directly into a production line and collecting real-time data for the tax authority. But in terms of broad fiscal policy, the high-tech monitoring system in Kenya is beginning to enjoy support and endorsement by other tax authorities in Africa, as well as by some forward thinking taxpayers.

During a recent meeting of the Africa Tax Administration Forum (ATAF), the continental association of tax administration authorities, the EGMS received wide endorsement and acclaim by the members.

Indeed, KRA has reported that system increased excise tax compliance by 45 per cent. A report by the ATAF noted that the system had proved robust at detecting counterfeit goods and preventing smuggling. The report also found the system to be adept at stamping out falsification of production volumes.

It is therefore not surprising that in the wake of the shortfall in excise tax collections, the KRA plans to pile more pressure on non-compliant behaviour by expanding and enforcing the use of EGMS.

Last week, the taxman announced that it would roll-out a major campaign to sensitise manufacturers, retailers and distributors as well as the police and consumers to verify genuine products by using smartphones through an app dubbed ‘Soma Label’ that is part of the EGMS solution.

READ: Taxman targets distributors in renewed illicit drinks war

According to Commissioner of Domestic Taxes Benson Korongo, the first part of the campaign will include workshops targeting 35 towns countrywide.

The use of mobile phones to scan products will go a long way in empowering consumers to identify and avoid contraband products in the market, eventually eliminating them by drying up demand.

Recent trends show that excise duty is emerging as the tax with the greatest potential for sub-Saharan Africa. It is no surprise then that tax policy has responded to the growing importance of this tax category by expanding the number of excisable goods in order to widen its base.

In general, excisable goods are mostly luxury goods consumed out of the need to display status rather than as a necessity. Excise duties are also charged as a sin tax on goods like alcohol and tobacco that pose health problems to consumers.

But there are other factors and side benefits which have encouraged authorities in Kenya and African countries at large, to gradually expand the excise tax dragnet.

Governments must finance public expenditures through fiscal revenues as deficit financing is no longer feasible. Kenya must, therefore, strive to increase the performance of this category as it is clearly the tax of the future.

Robert Ndege is Director, TL Message and Media.