The taxman Tuesday indicated excise duty on the products will increase 4.97 percent in line with average annual inflation.
This will see manufacturers pass on the additional cost of the commodities to end users in what may further stoke public outrage over the high cost of living.
Most households are yet to recover from the effects of the Covid-19 pandemic, which triggered layoffs, pay cuts and business closures.
The prices of least 31 goods, including beer, fuel, bottled water and juice, will increase from October 1 after the Kenya Revenue Authority (KRA) moves to effect annual inflation tax adjustment on excise duty charged on the products.
The taxman Tuesday indicated excise duty on the products will increase 4.97 percent in line with average annual inflation.
This will see manufacturers pass on the additional cost of the commodities to end users in what may further stoke public outrage over the high cost of living.
Most households are yet to recover from the effects of the Covid-19 pandemic, which triggered layoffs, pay cuts and business closures.
Consumers will pay Sh5.77 more for a litre of beer while the prices for spirits will rise highest at Sh13.20.
A litre of petrol will increase Sh1.09, pushing excise duty to Sh23.04 on the commodity, while diesel and kerosene will increase by Sh0.566 per litre each.
“The Commissioner-General adjusts for inflation the specific rates of duty set out in the Schedule hereto in accordance with the formula specified in Part 1 of the First Schedule to the Act with effect from the October 1, 2021,” the KRA said in a notice yesterday.
The adjustment is in line with the law that demands that excise duty be revised upwards in tandem with the cost of living measure or the average rate of inflation in the 12 months through June.
The KRA will for the first time be required to get parliamentary approval to effect the new rates following changes to the law that came into effect last year.
Industry lobby Kenya Association of Manufacturers (KAM) has consistently urged the taxman to pause implementation of the annual inflation adjustment tax that affects excisable goods, citing economic hardships as a result of the Covid-19 crisis.
The rise in fuel tax comes in a period when the State has turned to subsidies to ease the pressure of rising crude prices at local pumps.
The subsidy kept the cost of a litre of petrol at Sh127.14 in Nairobi, which would have increased to Sh130.71 without the subsidy—a high in Kenya’s history.
Other items that are set to attract higher taxation are cigarettes, bottled water and motorcycles (boda boda).
The price of one stick of cigarette will increase by Sh0.16 in line with the rise in excise tax from Sh3.31 to Sh3.47 while the duty on bottled water will rise from Sh3.31 to Sh3.47 per litre.
The excise tax on motorcycles (motorcycle ambulances and locally assembled bikes are exempted) will go up from Sh11,608 to Sh12,185 from October.
Before 2018, the affected goods had fixed excise rates, and the new inflation adjustment is seen as a means of protecting the government’s spending power from being eroded by the rising cost of living.
Parliament will, within 28 sitting days of receiving the notice, decide whether to approve or reject the inflation adjustment.
Under the previous law, the KRA Commissioner-General only needed to issue a legal notice stating the adjustment for the new tax to become effective every October.
Parliament in June rejected a bid to change the law and stop the annual review of the product prices.
The MPs overruled the push to have the KRA review the prices every two or three years to cushion consumers and firms from rising product costs.
Soft drinks giant Coca-Cola had petitioned Parliament to have the review in tandem with the average annual inflation to be done every three years.
Beer maker East Africa Breweries Limited (EABL) unsuccessfully lobbied lawmakers to have the price reviews done every two years.
The National Assembly Committee on Finance and National Planning rejected the push to change the law, arguing that checks were introduced last year to ensure the price review factors in other economic indicators beyond inflation.
Firms like EABL have been raising beer prices by Sh10 per bottle in response to the inflation-adjusted tax.
Last year, the taxman increased the costs of the products by at least 5.43 percent, a blow to consumers hurt by job cuts and unpaid leave in the wake of the Covid-19 pandemic.
It made the changes before the application of the new law that requires the Treasury’s and Parliament’s approval.
Manufacturers affected by the excise taxes have opposed the annual inflation adjustment, arguing that it leads to price instability and distorts the overall inflation.
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