The inflation adjustment, which came to force in 2018, is a means of protecting the government’s spending power from being eroded by the rising cost of living.
Consumers and manufacturers of the excisable goods have in the past two years protested upward adjustment of taxes in line with average inflation for the previous year, citing economic hardships brought about by Covid-19 shocks.
Consumers will be spared annual price increases on a range of excisable goods like fuel, beer, motorcycles and bottled water during a hard economic period if MPs approve proposed changes to the Excise Duty Act.
The proposed amendments have empowered the Kenya Revenue Authority Commissioner-General Githii Mburu to exclude some products from annual inflation tax adjustments depending on economic circumstances facing producers and consumers of the applicable goods.
At the moment, Mr Mburu has no power to exclude any of the about 31 excisable goods from higher taxes in line with inflation.
The inflation adjustment, which came to force in 2018, is a means of protecting the government’s spending power from being eroded by the rising cost of living.
Consumers and manufacturers of the excisable goods have in the past two years protested upward adjustment of taxes in line with average inflation for the previous year, citing economic hardships brought about by Covid-19 shocks.
“It has been observed that the adjustment may not always be appropriate for some products, depending on the economic and social environment facing these products at that time,” said Treasury secretary Ukur Yatani in his Budget Statement on Thursday evening.
“To address this, I propose to empower the Commissioner General of KRA to exclude, from inflation adjustment, such products after consideration of the prevailing economic circumstances.”
This, if endorsed by lawmakers, will come as a relief to consumers and manufacturers who have been calling for a change in the legal regime to consider unique economic circumstances before raising the duties.
For example, the KRA was last November forced to exclude petroleum products from a 4.97 percent tax increment after two consumers — Isaiah Odando and Wilson Yata — challenged the enforcement in court on grounds of hard economic conditions.
The adjustment in excise duty, which initially targeted Sh3.7 billion between last October and June 2022, was paused until November 2 after Justice James Makau issued an injunction on fuel taxes pending the determination of the case.
Earlier in the year, giant beer manufacturer East Africa Breweries Limited (EABL) #ticker:EABL and beverages maker Coca-Cola had unsuccessfully lobbied lawmakers to have the excise duty reviewed every two years and three years, respectively.
“The problem with that inflation adjustment is that it put in law a mandatory excise increase every year.
“So what will happen is that beer price in Kenya, which is already the most expensive in the region, will get worse,” EABL’s chief executive Jane Karuku said in an interview in July last year.
“If we continue increasing like this, people will go to the spirits and spirits is where you find a lot of counterfeit, unlike beer.”
