The Sh4.5 billion Swiss debt behind tripling of stamp taxMonday February 06 2023
A Sh4.5 billion debt owed to a Swiss contractor by the Kenya Revenue Authority (KRA) pushed the National Treasury to propose the tripling of excise stamp charges.
The Business Daily has learnt that the debt to SISCPA, the Swiss company contracted to manufacture the stamps, is one of the main reasons that motivated the National Treasury to propose an increase in excise stamp taxes, that have jolted manufacturers who were expecting the cost of the stamps to drop by more than half, according to a new contract that KRA signed with the Swiss company.
National Treasury Cabinet Secretary Professor Njuguna Ndung’u told manufacturers at a closed-door meeting last week that the stamps had to be priced “correctly” to help KRA pay SISCPA the debt which the taxman had accumulated over the five years of the contract.
Read: Treasury plots 300pc stamp tax hike on alcohol, makeup
The Swiss company was awarded the contract on the Excise Goods Management System (EGMS) in December 2012, with the contract officially starting on October 30, 2015, when two parties signed a framework deal that would see SISCPA print, supply and deliver secure revenue stamps complete with track and trace.
SISCPA would be paid Eur 13.25 (Sh1,796), exclusive of value-added tax (VAT) for the stamps which would first be affixed on alcoholic products including beer, wine and spirits.
The enforcement of the EGMS was extended to non-alcoholic products such as cosmetics, fruit juice, and soda, in March 2021.
While manufacturers paid for the stamps, KRA was also expected to bear part of the cost, a situation that has seen it accumulate a lot of debt.
“Tax stamps are subsidized and KRA has an accumulated debt of Sh4.5 billion with the contractor…,” said a source who attended a meeting held last week between KRA and the Kenya Association of Manufacturers (KAM).
“The stamps have to be costed at the ‘correct’ price in order to pay off the debt that has accumulated and been impacted by inflation, exchange rate, depreciation of the Shilling etc,” the source said, explaining the reasoning of the National Treasury.
The planned price raises will hit cosmetics hardest where the stamp fees will surge more than three-fold to Sh2.50 per unit followed by fruit juices and non-alcoholic beverages such as sodas in plastic bottles where the cost will climb 267 percent to Sh2.20 per stamp.
The cost of a stamp affixed on a beer bottle will double to Sh3 from Sh1.50, while those for spirits, wines and tobacco products are set for a 79 percent rise to Sh5 from the current Sh2.80 per stamp.
SISCPA provides security inks for currencies and sensitive documents was awarded a Sh17 billion contract to print excise stamps for five years.
The proposed changes will see the cost of stamps more than triple, diving up the prices of bottled water, juices, cosmetics, beer as well as spirits like whisky and gin.
Manufacturers, through their lobby, have warned the proposed increase in the cost of excise stamps will encourage trade in counterfeited spirits, cosmetics, water brands and juices, hurting growth in taxes targeted by President William Ruto’s regime.
They also protested the proposed amendment to the laws as aimed at changing the use of excise stamps from a “revenue assurance tool” to a “revenue collection mechanism”.
The contract between KRA and SISCPA was to lapse towards the end of 2020, with the two parties signing a handover agreement that would see KRA take over the entire system.
Additionally, KRA and SISCPA were to sign a maintenance contract that would see the Swiss company continue to support the system after the handover.
Read: How January taxes will hit consumers, companies
“The price of the aggregated stamp after handover shall not be more than EUR6.63 per 1,000 stamps (i.e. corresponding to not more than 50 percent of the current price) for a solution with the same features,” reads part of the addendum to the initial contract.
The alteration of this cost, the contract noted, would be made by mutual consent by both parties.
SISCPA was also going to sell the stamps to other government agencies, and the price would include any cost of development or enhancement to bring those Government agencies on board.
Cost EUR2.65 per 1,000 stamps (20 per cent of the current KRA contract price) to other Government agencies.
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