The taxman projects that the recent increases in excise duty as a result of inflation adjustments will net an additional Sh3 billion in revenues, even as manufacturers brace for lower demand.
The Kenya Revenue Authority raised taxes on a range of excisable goods like beer, bottled water and juice by 6.3 percent from this month in line with average price growth for the financial year ended June 2022. But the KRA maintains that the increments will not significantly hurt consumption.
“It may look little because when you look at the spectrum of taxes that we collect, it comes from various sources which contribute little by little to make the trillions [of shillings] that we collect,” Maurice Oray, KRA’s Deputy Commissioner for corporate policy, told the Business Daily.
“It tells you that we should not say that it [inflation adjustment] is going to overburden consumers.”
The upward adjustment, in line with Section 10 of the Excise Duty Act, is aimed at stabilising revenue by ensuring tax receipts do not lag when prices increase.
The annual review, enforced on October 1, increased duty on a litre of beer by Sh8.44 to Sh142.44, wine (Sh14.43 to Sh243.43), spirits like whisky (Sh21.12 to Sh356.42), juices (Sh0.84 to Sh14.14) and bottled water (Sh0.38 to Sh6.41).
Other products whose duty has been increased are cigarettes with a filter by Sh0.24 to Sh4.067 per stick, while tax on a kilogramme of imported sugar confectionery and white chocolate has gone up by Sh2.54 and Sh14.56, respectively, to Sh42.91 and Sh257.55.
Excise tax per unit of motorcycle (boda boda), on the other hand, has increased Sh767.67 to Sh12,952.83.
The inflation adjustment does not, however, apply to goods which are subject to ad valorem excise rates. The increased duty review has, consequently, not been effected on motor vehicles, cosmetics, jewellery, imported pasta, food supplements, imported eggs and potatoes.
KRA Commissioner General Githii Mburu also exempted petroleum products from the higher inflation-adjusted taxes ahead of the enforcement date that gives him such powers.
The Finance Act 2022 amended Section 10 of the Excise Duty Act to allow exempting specified goods from inflation adjustment by considering prevailing economic circumstances for such products from January 2023.
“In making the laws, we are not blind to the factors prevailing in the economy and also the fact that the matter of adjusting petroleum products was in court and ruled on. So, we had to take into consideration the impact it will have on the economy,” Mr Oray said.
“It would have been very insensitive for KRA to just apply inflation adjustment on petroleum products because it has a ramification effect on the economy. When you increase [duty] on petroleum products everything else also increases.”
The inflation adjustment on petroleum products was initially in the draft notice by the KRA but was dropped after the public submitted views. The taxman had targeted Sh3.7 billion last fiscal year ended June 2022 from the annual inflation adjustment at the rate of 4.97 percent for that year.
However, two consumers — Mr Isaiah Odando and Mr Wilson Yata — successfully challenged the enforcement of petroleum products in court on grounds of an economic squeeze.
The inflation adjustment, which took effect 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 about 31 excisable goods have in the past three years protested upward adjustment of taxes.