Excise tax receipts decline that ushered Ruto reforms
Phoenix Beverages Limited (PBL) has received approval to acquire a 28.15 percent stake in a local firm that manufactures alcoholic and non-alcoholic beverages. PHOTO | SHUTTERSTOCK
Excise duty collections for the first half of the current financial year grew at a single digit for the first time in five years, excluding the pandemic period, catching the eye of President William Ruto and spurring fresh reforms.
Tax receipts from the sale of excisable goods such as beer, spirits, cigarettes, mineral water, juice, cosmetics, airtime and internet use rose 5.38 percent between July and December 2022, the latest data shows.
This came at a time Dr Ruto publicly castigated top officials at the Kenya Revenue Authority for alleged collusion with rogue traders to defraud the exchequer billions of shillings annually, singling out the collection of excise duty.
National Treasury data shows excise tax receipts for the six months amounted to Sh130.34 billion compared with Sh123.68 billion the year before but fell short of the target by Sh8.69 billion.
The collections grew at the second slowest pace amongst major votes, only overtaking payroll taxes which expanded by 5.1 percent to Sh220.88 billion — reflecting movement in the formal job market.
Firms selling goods, which attract excise duty have, nonetheless, linked the slowdown in the collection to higher rates largely applied on goods and services considered harmful to the health of the society or morally suspect hence the term ‘sin tax’.
Crispin Achola, managing director of British American Tobacco Kenya said the slower growth in the collection was attributable to “aggressive” tax increases which have hurt affordability, thus slowing growth in sales.
“For us [BAT], between November 2021 and November 2022, cumulative taxes on cigarettes went up 21 percent. Despite that increase, our government revenue payment increased by two percent,” Mr Achola told the Business Daily.
“That tells you there’s something that is not working. We are looking at a stage where further increases are likely to result in lower government collections largely because we are in such a precarious economic state.”
Dr Ruto had publicly told top taxmen, the majority of whom have since been pushed out of Times Tower, that it was unacceptable that Kenya was selling a measly 2.9 billion excise stamps annually compared with Tanzania’s “seven” billion and Uganda’s “nine” billion.
The excisable stamps, the president said, were less than a third of Kenya’s potential of 10 to 12 billion stamps.
“There are people who are selling the balance which is approximately seven billion stamps. I have told the Commissioner-General [Githii Mburu who left late February] he must tell these people to stop and we have no choice because I do not want to fight with people, but they must stop,” Dr Ruto had said.
The Treasury has increasingly expanded the basket of products they charge excise duty unlike in the past when it was applied to goods and services considered harmful to the health of the society or morally suspect.
Some of the goods and services, which have recently been slapped with ‘sin tax’ include airtime, internet, loan fees, SIM cards and mobile phones.
The Treasury has since sought to enforce two sets of regulations in the excise duty regime, aimed at sealing revenue leakages.
The first is the draft Excise Duty (Amendment) Regulations 2023 which seeks a total overhaul of monitoring and measuring systems at factories to give the KRA round-the-clock access to operations of production lines in real-time.
The rules require factories producing excisable goods to install Internet Protocol (IP) cameras in all areas as directed by the KRA officials.
The IP cameras, which will transmit real-time data to Times Tower, will have the capacity for infrared night vision, a 360-degree rotating view and cover distance that will be specified by the taxman.
The surveillance system will also have to support different types of video analytics such as “face detection, people counting, object detection, crowd detection, tripwire, perimeter, scene and defocus detection [and] motion”.
This will be an overhaul of the 2011 regulations which required monitoring and measuring devices to have “capability for electronic data transmission and support remote communication”.
Manufacturers will also be required to install new flowmeters —used to measure the amount of alcohol or cosmetics produced — with an accuracy of plus or negative 0.25 percent as opposed to the current (+/-) 3.0 percent
The Kenya Association of Manufacturers, the sector’s lobby, has protested the proposed rules as likely to “expose company personal and sensitive data” which may breach the Data Protection Act, of 2019.
“The provisions of the draft regulation will require companies to continuously seek consent from all data subjects who will be in the premise of the manufacturing facility, and which exposes the manufacturer to liability for any breach should the data subject file a claim on the same,” KAM wrote in a memorandum to the KRA.
“The nature of monitoring proposed herein will lead to monitoring of processes that have been contractually secured to protect Intellectual Property holders. A breach of this may lead to withdrawal of rights which will impact on productions and reduce on government revenue especially excise duty.”
The taxman first rolled out excise stamps on alcoholic drinks and cigarettes in 2013 before being affixed on bottled water, juices, soda in polyethene terephthalate (PET) bottles, energy drinks, cosmetics and food supplements in 2019.
The proposed price hike, if enforced, will be the first since 2017, increasing collection from the excise duty stream which has over the years become the softest target for additional government revenue.
