New beer, juice and cosmetic taxes kick in

Times Tower in Nairobi, the headquarters of Kenya Revenue Authority. PHOTO | DENNIS ONSONGO | NMG

From today [Friday], consumers are facing higher prices of alcohol, juices, cosmetics and beauty products as the government enforces new taxes to fund this financial year’s Sh3.3 trillion budget, further raising the cost of living.

The new consumption taxes, aimed at partly raising an additional Sh50.4 billion in revenue, will add to a double-digit jump in food prices that have pushed the cost of living to a nearly five-year high.

The Finance Act 2022, which President Uhuru Kenyatta signed into law last week, has raised excise duty on a number of goods and services the government considers harmful, luxurious or morally suspect by at least 10 percent.

“These taxes are going to make cost of living high and reduce disposable income for households. Life is going to be a bit difficult, Stephen Waweru, a senior manager for tax services at consultancy and audit firm KPMG, said.

“With consumption taxes, you are able to net almost everyone because there are people collecting on behalf of the government. This, unlike the direct taxes [like income taxes] which one can avoid by deciding not to disclose your total income.”

Consumers of spirits like whisky, gin and rum are the hardest hit with duty per litre climbing 20.31 percent to Sh335.30 after the House rejected a recommendation by Finance and Planning Committee to spare alcohol from higher taxes this fiscal year.

Duty on beer has also gone up by 9.97 percent to Sh134 per litre, wines by 9.99 percent to Sh229 per litre, while fruit and vegetable juices will increase 9.29 percent to Sh13.30.

The MPs shot down recommendation of the Budget committee, chaired by Gladys Wanga that sought to spare alcoholic drinks from further price raise on grounds that it will increase consumption of illicit drinks at a time most households are grappling with soaring cost of living amid stagnant salaries.

“These taxes are increasing the cost of living both for middle-class and even the low-income households who will pay more even when they take Fuliza (Safaricom’s overdraft facility),” said Philip Muema, a partner at a tax and business advisory firm, Andersen Kenya.

“This is a bit absurd in an election year where you expect a bit of leeway from the government. But the government of the day is taking leave.”

The multi-billion-shilling cosmetics and beauty products industry, which has seen a rise in spas in recent years, has also been slapped with a rise in duty on the products to 15 from 10 percent.

The cost of imported jewellery such as necklaces, earrings, bracelets and rings is also set to go up on a 15 percent duty compared with 10 percent previously.

The Finance Act, passed by legislators before the House adjourned indefinitely ahead of August 9 polls, has left the duty on bottled water unchanged at Sh6.03 per litre against Treasury’s proposal for a raise to Sh6.60.

The MPs also protected gamblers and punters from an increase on duty charged on cash wagered on betting, gaming, prize competition and lottery ticket and winnings from current 7.5 percent to 20 percent.

The duty on purchase of motorcycle taxis (boda bodas) has also remained unchanged at Sh12,185.16 per unit after the legislators rejected a 10 percent raise projected by the Treasury.

To fill the resultant revenue gap, the lawmakers slapped a fresh 10 percent excise duty on importation of mobile phones and Sh50 for every imported ready-to-use SIM card.

The new tax on cellular phones and new registration of SIM cards has made mobile telephony market a key target for raising billions of shillings in new revenue.

Mobile network subscribers already pay 20 percent duty on airtime and internet as well as 12 percent on money transfer services like globally-acclaimed M-Pesa, and face higher cost of mobile loans on 20 percent duty slapped on fees earned by digital lenders

“The Treasury and MPs have realised that mobile phones are a lifeline for everybody and there are more and more of us that are buying phones, and more and more will want to buy them in future,” Nikhil Hira, a partner at tax advisory Kody Africa LLP, said on Wednesday.

“It doesn’t make a lot of sense because we don’t have a local industry. I would understand if we had a mobile manufacturing industry because we would be trying to protect it.”

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