Inflation-tied taxes to hit homesFriday September 16 2022
An evening out with a friend over a beer, a bottle of water, a cigarette and a box chocolate gift will from next month cost more as the Kenya Revenue Authority releases the 6.3 percent inflation-adjusted tax on consumers.
The implication of the excise duty will see the price of a bottle of water go up from Sh6.6 per litre to Sh7.02 while juice sellers will part with Sh14.14 for every 12 litres up from Sh13.3. And sugar confectionery taxes have risen from Sh40.3 for every 36 kilos to Sh42.9.
The KRA will now demand Sh142.4 for every two beer bottles or a litre of your favourite drink up from Sh134 and Sh4.06 for filtered cigarettes up from Sh3.82.
The taxman will also gun for wines demanding Sh243.4 for every 208 litres up from Sh229 and Sh356.4 for 278 litres of spirit from Sh335.
“The specific rates will be adjusted using the average inflation rate for the financial year 2021/2022 of six decimal three per centum (6.3 percent), as determined by the Kenya National Bureau of Statistics,” KRA said.
Governments that tax goods in local currency at specific rates find that taxes lose value as the prices of goods increase.
They have to choose whether to charge ad valorem tax — a proportion of the value of the underlying assets — or effect a specific rate but adjust the rate periodically to inflation.
Kenya has chosen the latter which means the taxman annually moves the tax upwards.
This move, however, serves only to increase prices of goods, further necessitating more inflation adjustments that can hit tax collection by reducing consumption or tempting business to cheat the taxman.
Manufacturers are concerned that their commodities are being pushed out as buyers either seek cheaper alternatives or abandon some habits.
This has seen them fight the annual adjustments in court like the Pubs Entertainment and Restaurant Association of Kenya (Perak), Mwaura Kabata and Kenya Human rights Commission who sued the taxman last year for adjusting excise duty to cover the inflationary erosion of taxes.
The taxman had initially targeted Sh3.7 billion in additional revenue from inflation-adjusted taxes on this fiscal year ending June 2022.
Consumer goods companies put up a fight against inflation adjustment on excise duty. They cite slow recovery from Covid-19 hiccups.
In September last year, oil marketers also sued KRA, arguing new levies on petroleum products have subjected Kenyans to suffering, calling for its suspension.
The taxman is, however, under pressure from the International Monetary Fund to improve revenues that they have been accused of contempt of court in a bid to sustain higher collections.
The IMF noted the Kenyan courts have taken a more activist approach by striking down attempts to introduce a minimum alternative tax and even the regular inflation adjustment of excise rates.
The Kenya Association of Manufacturers who have also fought the adjustments have stated that over the years, the annual inflation adjustment has not yielded increased tax revenues.
For instance, excise tax payments for cigarettes declined by 12 percent in 2020 despite the implementation of the 4.94 percent annual inflation adjustment.
The manufacturers lobby says this proves that increasing excise tax increase has reached its limit.
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