Treasury plots 300pc stamp tax hike on alcohol, makeupWednesday January 18 2023
Consumers should brace for a fresh round of price increases on alcohol, juices, cosmetics and cigarettes if a proposal by the National Treasury to raise the price of excise stamps by up to four times is approved.
The Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023 proposes to raise the stamp fees for cosmetics from 60 cents per stamp to Sh2.50 — a margin of 317 percent — while the stamp fee for fruit juices and non-alcoholic beverages such as sodas will go up by 267 percent to Sh2.20 from 60 cents.
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.
These higher stamp prices will likely be passed down to the final consumer by producers and importers, similar to other excise charges, adding to the recent 6.3 percent adjustment for inflation that came into effect last October and the usual rate revisions contained in the annual budget.
This is the first review of the stamp prices since 2017, with the Treasury in line to rake in extra billions from the estimated 2.9 billion excise stamps that the Kenya Revenue Authority (KRA) sells for mandatory affixing on excisable products.
Read: New beer, juice and cosmetic taxes kick in
The excise stamps are meant to deter counterfeiting and enable tracking of excisable goods along the supply chain, which helps the taxman compute the excise due from manufacturers and importers.
Tax experts say the move to raise the stamp fees is indicative of pressure facing the Treasury to raise tax collections but that it raises the risk of increased use of fake stamps, which is already a major headache for the KRA.
“The rationale is likely to be pressure from the government to collect additional revenue — we have seen KRA being given an ambitious revenue target and the government state an intention to become self-reliant against borrowing,” said Stephen Waweru, senior manager of tax services at KPMG Kenya.
“On the other hand, it might trigger more people to seek loopholes through counterfeits since under the current economic environment of high inflation few have room to pay more to government…the timing could be wrong.”
Excise duty, being a consumption tax, reaches a wider range of the population and is hard to avoid for a consumer, providing the government with an attractive target in its bid to raise additional taxes.
Sin taxes usually provide the Treasury with low-hanging fruits when it wants to raise taxes in the national budget.
Beer, for instance, currently attracts excise at the rate of Sh142.44 per litre, having gone up from Sh121.85 in the fiscal year to June 2021, reflecting an increase of Sh12.15 per litre in the June 2022 budget and a subsequent inflation adjustment of 6.3 percent in October.
Excise on wines has risen from Sh208.20 to Sh243.43 per litre in the period, while tax on spirits has gone up from Sh278.70 to Sh356.42 per litre. Excise on fruit juices has in the meantime risen to Sh14.14 per litre from Sh12.17.
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 products to 15 from 10 percent.
The cost of imported jewellery such as necklaces, earrings, bracelets and rings also attracts a duty of 15 percent, compared with 10 percent previously.
In the year ending June 2022, the KRA collected Sh256.3 billion in excise taxes, equivalent to 13 percent of the KRA’s total revenue collection of Sh2.03 trillion.
Value-added tax contributed Sh520.4 billion to the tax pile, while payroll and corporate taxes contributed Sh461.8 billion and Sh416.7 billion, respectively.
For the KRA, the drive to grow the takings from sin taxes has been hampered by a proliferation of fake excise stamps that allow rogue manufacturers and importers to evade paying up, giving them a huge market advantage over compliant businesses.
Read: Why alcohol manufacturers fight to cheat excise taxes
Speaking last October, President William Ruto said the country ought to be selling between 10 and 12 billion excise stamps annually but expressed concern that the KRA is only shifting 2.9 billion stamps with the remainder being produced by counterfeiters.
Earlier, the KRA had estimated that it loses up to Sh12 billion annually from excise duty evasion from the local manufacturing sector.