EABL says it hopes the government will lower or scrap the 50 per cent levy introduced on the low-cost beer.
The excise tax dealt a blow for EABL’s fast growing product as monthly sales of Senator Keg plummeted from 20 million litres to 3.5 million litres following a sharp increase in price of the drink.
Beer maker East African Breweries Limited (EABL) is in negotiations with the Treasury over the excise tax slapped on Senator Keg last year causing a plunge in sales, Diageo president for Africa Nick Blazquez has said.
EABL says it hopes the government will lower or scrap the 50 per cent levy introduced on the low-cost beer in the June Budget speech set to be read by Treasury Secretary Henry Rotich.
The excise tax dealt a blow for EABL’s fast growing product as monthly sales of Senator Keg plummeted from 20 million litres to 3.5 million litres following a sharp increase in price of the drink.
“We are in conversations with the Kenyan authorities and whilst they recognise the issue, what they will do in the forthcoming budget will be obviously their decision,” said Mr Blazquez last week at a conference call with analysts across the world.
He is also the Diageo president for Turkey, Russia, central and eastern Europe. Diageo is EABL’s majority shareholder.
“Whilst I remain optimistic that they will remove this duty, my level of confidence is not high and the reason I’m so concerned about this is because people are moving back into illicit concoctions.”
The taxation of Senator Keg immediately led to the near doubling of the drink’s price to between Sh42 and Sh50 from the previous price of Sh30 for a 330ml serving.
More than 70 people in five different counties died this week after drinking illicit alcohol.
EABL has seized the opportunity to lobby for a cut in the tax imposed on Senator Keg, and Thursday morning managing director Charles Ireland is expected to address a press conference on the issue.
Since Senator Keg’s introduction in 2004, as one way of deterring the consumption of illicit and dangerous brews, the drink was tax exempt.
However, in October the government lifted this tax protection seeking to raise Sh6.2 billion to fund the national budget.
The Economic Survey 2014 shows that last year the government earned Sh16.9 billion from excise duty levied on beer, a 2.4 per cent increase from the previous year’s Sh16.5 billion.
“Excise revenue from beer increased marginally despite the reversal of excise duty on containerised beer,” the recently-released report notes in part. Given that consumers of the drink are price-sensitive, many quit the drink causing sales to drop drastically, pulling the group’s overall profit down with it.
“At its height Senator Keg sold about 200,000 hectolitres a month and in October 2013, sales fell to less than 35,000 hectolitres,” said Mr Blazquez.
“While sales have increased over the last quarter they are still significantly below last year and this has driven the overall decline in net sales for EABL.”
In the six months to December, EABL’s revenues grew by four per cent to Sh31.8 billion from Sh30.6 billion recorded during a similar period last year, a dismal showing the brewer attributed to low Senator sales.
EABL’s profit also grew by a similar margin to Sh4.1 billion compared to the previous year’s Sh3.98 billion.
Even as the brewer awaits the Treasury’s June excise tax announcement (if any will be forthcoming), it has now resorted to launching new products to cushion its earnings.
Jebel Gold -- a spirit priced at Sh10 for a 30ml tot -- which started being tested in 300 retail outlets late last year is now being distributed nationally in about 1,500 outlets.
