Distributors of alcoholic drinks have accused the Kenya Revenue Authority (KRA) of adjusting excise duty rates on about 30 products upwards in spite of a court order suspending implementation.
The distributors told High Court judge Anthony Mrima that the taxman had started implementing the new rates contained in a December 2021 legal notice against the court order.
The KRA had on November 2 raised the duty charged on the products, including bottled water, juice, motorcycles and beer, by 4.97 percent to cover the inflationary erosion of collected taxes.
A court ruling subsequently stopped the taxman from implementing the new excise rate.
“The respondents affirm that they [KRA] have indeed adjusted the inflation rates of the excise duty despite the subsistence of the court order issued on December 15, 2021, thereby forcing the applicant’s members and other taxpayers to pay improper adjusted rates,” Mr Michael Muthami, an alcohol distributor, said in a sworn statement.
Pubs, Entertainment & Restaurants Association of Kenya (Perak), Mwaura Kabata and Kenya Human rights Commission, among others, obtained orders restraining the KRA from implementing the new rates.
Justice Mrima directed the KRA, the Cabinet secretaries for Treasury and Energy, Parliament and other parties to respond to the application for contempt filed by Perak within seven days.
The case will be heard on June 8.
The excise duty adjustment is in line with the law that demands that it be revised upwards in tandem with the cost of living measure or the average rate of inflation in the 12 months through June.
The distributors alleged that the adjustment by the KRA, through the iTax and Simba systems, meant that its members were unable to correctly assess the excise tax as per the prevailing rates but were forced to pay using the suspended rates.
The court had suspended the new rates pending the determination of the petition. Attempts by the KRA to have the order lifted temporarily were rejected by the Court of Appeal, stating that the application was premature since the main case was yet to be concluded.
Perak challenged the new rates saying its members were yet to recover from restrictions imposed to control Covid-19, including the night curfew and closure of bars last year.
It also argued that the cost will also be passed to the consumers, a move that will see alcohol prices increase.
“That the continued unlawful adjustment of the excise duty rates as contained in the legal notice is causing untold suffering to the applicants from an economic and social perspective,” the court heard.
Consumers could pay as much as Sh5.77 more per litre of beer in line with the rise in the new duty, which has been fixed at Sh121.85 from the previous Sh116.08. The tax on spirits has gone up from Sh13.20 to Sh278.70 per litre, while wine now attracts a duty of Sh208.20 per litre, a Sh9.86 rise.
The KRA had opposed the petition arguing that inflation adjustment is based on revenue projections as prepared by the National Treasury Revenue Framework and Budget Policy Statement in order to meet the revenue requirements.
But in the ruling in December, Justice Mrima said it would be unfair to allow the new rates since the citizens will not be able to recover such payments in the event the petition is successful. The judge added that the KRA and the state have the machinery to raise more taxes, in case the case fails.
The taxman had initially targeted about Sh3.7 billion in additional revenue from inflation-adjusted taxation this fiscal year ending June 2022.
It has defended the new rates, arguing that the cost of goods and services increase every year due to the dynamics within and outside the country.
The KRA said it had informed manufacturers, importers of excisable goods and members of the public that it intended to adjust the rates of excise duty using the average inflation rate of 4.97 percent as determined by Kenya National Bureau of Statistics.