The Parliamentary Finance and National Planning Committee has recommended a mixed bag of tax measures on alcohol manufacturers amid concerns about the negative impact some of the rules would have on the businesses.
On the positive side, the committee led by the Molo MP Kimani Kuria, handed the local alcohol manufacturers some reprieve after it allowed them to claim excise duty refunds on inputs such as ethanol and glass used for manufacture, a proposal that is likely to increase the cost of liquor, especially locally manufactured spirits, should it be passed.
The committee also proposed a reversion to the pre-July 2023 position where the alcohol manufacturers remitted excise duty to the Kenya Revenue Authority (KRA) every month.
Presently, alcohol manufacturers are required to pay excise duty within 24 hours, which has left a lot of brewers in a cash crisis.
However, the committee refused to back down on the shift to the new tax regime based on pure alcohol content. The proposal is likely to push up prices for spirits with high alcoholic content such as whiskies, gin, and brandy.
The shift to alcohol-based volume (ABV) will see excise taxes on these drinks rise by 80 percent, with the players submitting that the increase should have been done incrementally. The committee refused, arguing that the new regime is meant to incentivise brewers to produce drinks with less alcohol content, as part of the solution to fight the drinking menace.
Moreover, the committee wants the provisions shifting the tax regime to ABV to take effect in August.
“The committee observed that to enhance revenue collections, the commencement date in clause 42(a)(i)(I), (J), and (K) needs to be revised from September 1, 2024 to August 1, 2024,” reads the report.
Alcohol producers can at least console themselves with the committee’s proposal to allow them to get refunds on excise duty paid in inputs such as ethanol, the raw material for the manufacture of alcohol, and extend the period for remitting excise duty from the current 24 hours.
In the Finance Bill 2024, the Treasury had proposed an extension of the period within which a manufacturer could pay excise duty from the current 24 hours to five working days, which brewers told the committee was still not sufficient.
The Treasury had proposed to delete Section 14 of the Excise Duty Act, which allows alcohol manufacturers to claim refunds on inputs such as ethanol, glass, sugar, and concentrates.
“The committee notes that the excise duty like VAT for excisable manufacturers considers input and output tax and therefore deleting section 14 of the Excise Duty Act would mean that excisable manufacturers would not be allowed to deduct excise duty hence it would increase the cost of production unnecessarily and increase the prices of the products to consumers. In this regard, the committee supports the proposal to delete the clause,” said the committee.
Without claiming, the alcohol producers said, they would be forced to pass on this cost to the final consumers, pushing up the cost of alcoholic products. Besides discouraging manufacturers from producing alcohol locally, producers warned that it would be cheaper to import the final product from outside.
Producers of spirits told the committee that paying excise duty on the inputs as well as the final product would amount to double taxation.
The committee also gave alcohol manufacturers up to a month, handing alcohol manufacturers who had suffered steep losses due to the requirement to remit excise duty to the Kenya Revenue Authority within 24 hours relief. The move pushed players such as East African Breweries Limited, the region’s largest brewer, to rely on short loans from a commercial bank to service up to half of its exercise obligations.
