Eyes on MPs over new beer, boda boda taxes

The fate of proposed tax increases on about 30 products, including bottled water, juice, motorcycles and beer, lies in the hands of MPs amid public concern about the high cost of living.

The Kenya Revenue Authorities (KRA) has raised the duty charged on excisable goods, excluding fuel, by 4.97 percent to cover the inflationary erosion of collected taxes.

The Finance Act 2020, however, requires MPs to approve the changes by the taxman. According to the law which came to effect in January, the Treasury Cabinet Secretary is expected to table the proposals for inflation adjustment in the National Assembly seven days from the day of publication in a legal notice.

The National Assembly shall then consider and approve the gazette notice within 28 sitting days from the date it was tabled.

The inflation adjustment schedule by KRA Commissioner-General Githii Mburu is dated October 25 but was published on November 2.

The KRA had initially issued a public notice on August 10 inviting the public to give their views on the excise duty rates based on average inflation for the previous financial year.

A case was, however, filed in court challenging the proposed tax adjustment on fuel, resulting in a pause on the plan that was to be enforced on October 1.

Fuel has been shielded from increased taxation as a result of the September 27 High Court order, which suspended an increment on petroleum products pending a determination of the case filed by Isaiah Odando and Wilson Yata.

The inflation adjustment, which came into force in 2018, is seen as a means of protecting the government’s spending power from being eroded by the rising cost of living.

The taxman had initially targeted about Sh3.7 billion in additional revenue from inflation-adjusted taxation this fiscal year ending June 2022.

KRA Commissioner for Domestic Taxes Rispah Simiyu in a public notice on Tuesday informed importers and manufacturers the "rates of excise duty on excisable goods that have a specific rate of duty have been adjusted using the average inflation rate for the 2020/2021 financial year… as required under Section 10 of the Excise Duty Act, 2015."

That section of the law empowers the taxman to adjust excise duty upwards in tandem with the average rate of inflation (cost of living measure) in the 12 months through June after approval by Treasury Cabinet Secretary Ukur Yatani.

"The adjusted rates are … effective from November 2, 2021," Ms Simiyu wrote in the notice.

The manufacturers will likely pass on the additional cost of the commodities to end consumers, piling more budgetary pressure on households struggling to recover from Covid-19 shocks on earnings.

The duty on bottled water and other non-alcoholic beverages, excluding fruit or vegetable juice, has risen by Sh0.29 or 5.05 percent to Sh6.03 per litre.

The price of fruit and vegetable juice will likely increase after the KRA raised excise duty by Sh0.58, or 5.0 percent, per litre to Sh12.17.

Consumers could pay as much as Sh5.77 more per a litre of beer in line with the rise in the new duty, which has been fixed at Sh121.85.

The tax on spirits has gone up Sh13.20 to Sh278.70 per litre, while wine now attracts a duty of Sh208.20 per litre, a Sh9.86 rise.

Giant beer manufacturer East Africa Breweries Limited (EABL) earlier in the year unsuccessfully lobbied lawmakers to have the excise duty reviewed every two years.

SHOT DOWN

A plea by beverages maker Coca-Cola to have the inflation adjustment done every three years was also shot down in the National Assembly.

"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 on July 30.

"If we continue increasing like this, people will go to the spirits, and spirits is where you find a lot of counterfeit, unlike beer."

Tax on motorcycles or boda boda as they are popularly known — and which are a major source of employment for youth — has risen Sh576.93 to Sh12,185.16 per unit, but excludes locally assembled motorcycles and those used as ambulances.

Other items that are set to attract higher duty are cigarettes with filters (Sh0.16 to Sh3.48 per stick), white chocolate (Sh10.43 to Sh220.31 per kilo), and some imported sugar confectionery (Sh1.74 to Sh36.74 per kilo).

"Kenya’s high taxes are already to blame for the smuggling of a range of goods from neighbouring countries where rates are lower," Consumers Federation of Kenya (Cofek) secretary-general Stephen Mutoro said in a statement.

"The upcoming increases will widen the gap further and boost the profit margins of criminals involved in illicit trade while stretching the resources of honest, hard-working citizens."