The Kenya Revenue Authority (KRA) is at pains to explain the loss of 9,686,358 excise stamps, raising fears of non-payment of tax and the sale of fake goods such as alcohol, cigarettes, soft drinks, and cosmetics.
Auditor-General Nancy Gathungu raised the red flag on the possible theft of the stamps in a fresh audit of the KRA’s financial statement for the fiscal year ending June 2024, published on Monday.
An excise stamp is a type of revenue marker affixed to some excisable goods to indicate that the required duty, popularly known as the ‘sin tax’, has been paid by the manufacturer.
It is also viewed as a mark of quality assurance, as it means the product affixed with the stamp has gone through State vetting. The excise stamps had disappeared from the KRA’s custody, raising fear that they might have landed in the hands of a tax cheat or an illicit trader.
“However, no evidence was provided on the type of the stamps lost, when the stamps were lost and investigations on the circumstances leading to their loss,” said Ms Gathungu.
First applied to alcoholic beverages and tobacco products, the stamps were later extended to non-alcoholic products as the government moved to clamp down on tax evasion and illicit trade.
Tobias Alando, the chief executive officer at the Kenya Association of Manufacturers (KAM), is worried by the possibility of the KRA losing these stamps.
“Those stamps falling into the wrong hands will lead to a lot of counterfeit goods in our local or regional market,” said Mr Alando.
Kenya has struggled to fight illicit goods to help local manufacturers, with the goods involved ranging from sugar to cigarettes accounting for 40 percent of all traded goods in the country.
Some of the illicit goods are imports supposedly intended for transit to a neighbouring country, then diverted to the local market with no import fees paid.
Others are disguised as imports of lower value, thereby evading taxes. Still others are local counterfeits, which could be the target of the stolen stamps.
Kenya’s manufacturing sector has been hit hard by an influx of cheap counterfeit products.
Fake goods kill consumer confidence in manufactured goods and make Kenya less attractive for investors, both domestic and foreign ones.
Analysts say fake goods are partly the cause of the country’s poor industrial performance
In 2022 during the annual Taxpayers’ Month at Nairobi’s Kenyatta International Convention Centre, President William Ruto wondered why there was a discrepancy where the KRA was only selling 2.9 billion excise stamps against a projected 12 billion.
“The trouble is the government is selling 2.9 billion stamps and there are people who are selling the balance, which is approximately 7 billion stamps,” said Dr Ruto without giving evidence.
The President also lamented that Kenya, a regional hegemony, was trailing its smaller neighbors such as Uganda and Tanzania in producing excise stamps.
Besides being prone to theft, the excise stamps, produced by the Swiss security firm SISCPA and embossed with trace features, have not been immune to counterfeiting.
The KRA graduated to stamps with enhanced security features after it emerged that the markers it had acquired since 2003 were prone to counterfeiting.
Revenue from excise duty has continued to increase on account of inflation and expansion of the excisable products, including financial transactions, airtime, and internet.
Excise duty from alcohol and cigarettes has remained largely flat, even as the country continues to record an influx of counterfeits from the neighbouring countries, particularly Uganda.
The collection of excise duty in the year ended June last year grew 4.6 percent to Sh276.72 billion from Sh264.5 billion a year earlier. Excise tax recorded a growth of 8.1 percent in the financial year ending June 2024, with a collection of Sh73.624 billion, which translates to a performance rate of 99.6 percent.
The KRA attributed the performance to the growth in revenue from manufacturers of soft drinks, which recorded a growth of 12.2 percent, bottled water 9.7 percent, beer 16.2 percent and tobacco 1.9 percent.
SISCPA was awarded the stamps deal in December 2012, with the contract officially starting on October 30, 2015, when the two parties signed a framework deal that would see the Swiss firm print, supply and deliver secure revenue stamps complete with track and trace features.
At first, the stamps would be affixed on alcoholic products, including beer, wine and spirits and tobacco, as the government sought to dent the illicit trade in these products.
Later, the enforcement of the excise goods management system (EGMS) was extended to non-alcoholic products such as cosmetics, fruit juice, and soda in March 2021.
In 2018, the KRA noted that fake stamps and counterfeit goods caused a Sh7.35 billion fall in excise tax in the six months to December 31, 2017, prompting the taxman to renew its war on illicit alcohol.
SISCPA, whose initial contract ended in 2021, had it extended on August last year in a deal aimed at giving the KRA more time to offset a debt of more than Sh4 billion it owed the Swiss security firm.
The extension would also see the excise stamp charges tripled as the KRA sought to raise more revenue from manufacturers.
However, the courts in late 2023 temporarily stopped the KRA from increasing the charges, agreeing with the Law Society of Kenya (LSK).
The plan was to extend SISCPA’s contract to other government agencies such as the Kenya Bureau of Standards (Kebs) as part of the government’s fight against illicit goods, which is a threat to the manufacturing sector and the health of consumers.
