Tax receipts from the importation and sale of alcoholic drinks, fuel, cigarettes, cosmetics, and cars have remained largely flat in the first half of the current financial year amid complaints of shrinking pay slips and thriving illicit trade.
Latest Treasury disclosures show receipts from excisable goods and services for the half-year period ended December 2024 grew at the slowest pace in seven years, excluding the Covid pandemic period.
The Kenya Revenue Authority (KRA) collected Sh141.35 billion from excise duty in the review period, a paltry 1.11 percent rise over Sh139.80 billion in the prior year.
Excise duty is largely charged on goods such as beer, spirits, wine, cigarettes, mineral water, juice, cosmetics, and motor vehicles as well as excisable services like airtime, internet, and earnings on loan fees.
The collections from manufacture, importation, and supply of excisable goods and services missed the Sh155.02 billion target for the six months by 8.82 percent, or Sh13.67 billion.
The Treasury has in the past cited “lower excise rate in petrol and diesel, decline in oil volumes, motor vehicle imports and deliveries of domestic excisable goods such as cosmetics, beer and spirits” for shortfalls in excise duty collections.
This came in a period when industry players such as East African Breweries Limited (EABL) and BAT Kenya decried a thriving illicit trade and shrinking pay slips for hurting sales growth, which translates to excise duty receipts.
“Illicit trade continues to grow, necessitating extra efforts from the government to mitigate the impact of unregulated alcohol trade,” EABL said in its latest statement to shareholders.
BAT Kenya, on the other hand, claimed the illegal sale of cigarettes accounted for more than a third of the market, blaming increased taxation on the product linked to a high risk of contracting life-threatening diseases such as cancer as well as lung and heart diseases.
BAT, citing findings of an annual survey conducted by a “third party”, said on February 21 that illicit cigarettes controlled about 37 percent of the market, more than three times 11.3 percent five years earlier, denying KRA about Sh9 billion annually.
“We implore the government to intensify enforcement efforts locally, and collaborate with relevant agencies of neighboring countries to eradicate the illicit trade menace at source,” the firm, whose shares are publicly traded on the Nairobi bourse, said.
The claims of a thriving illicit trade appeared to get credence earlier this month when findings of an investigation by Auditor-General Nancy Gathungu suggested that KRA could not account for 9,686,358 excise stamps for the year ended June 2024.
The audit findings have raised fears of non-payment of tax and the sale of fake goods such as alcohol, cigarettes, soft drinks, and cosmetics.
"However, no evidence was provided on the type of the stamps lost, when the stamps we lost and investigations on the circumstances leading to their loss," Ms Gathungu said in her report to lawmakers.
BAT further said sales were partly impacted by “lower consumer purchasing power driving down trading to lower priced brands”, while EABL also decried “shrinking disposable income”.
Workers have cited increased statutory deductions such as the Social Health Insurance Fund to support President William Ruto’s universal health coverage, housing levy, and enhanced National Social Security Fund levy for cutting take-home pay, eroding purchasing power.
Alcoholic drinks such as beer, spirits, and wine, alongside cigarettes, have for decades been seen as being price inelastic, meaning their consumption would not be hit by cost movements in either direction, making them soft targets for increased taxation.
The shift to a new method for calculating excise duty on alcohol based on alcohol content, or alcohol by volume (ABV), resulted in taxes on beer going down from December 27, while those for spirits increased.
The excise duty receipts have further been hit by the continued decline in sales of new motor vehicles on the back of increased import duty from 25 percent to 35 percent in July 2023, according to data from the Kenya Motor Industry Association (KMI).
The KMI numbers showed orders processed by firms such as Isuzu East Africa, CFAO Motors Kenya, and Simba Corporation dropped 2.74 percent to 11,059 units in the year ended December 2024 on the back of deterrent cost of borrowing amidst depressed circulation of cash in a softening economy.
Importation of vehicles further attracts excise duty ranging from 25 percent to 35 percent depending on the size of the engine, in addition to the standard 16 VAT also applies.
Excise tax is charged on the sum of the landed cost of the car and import duty.
Demand for new vehicles has declined for the third year running, with sales in 2024 the lowest reported since 2010.
KRA takes Sh21.95 as excise duty for every litre of super petrol bought, while the duty for diesel and kerosene is Sh11.37 per litre. Cosmetics and beauty products attract excise duty at the rate of 15 percent of value.
