Kenyans are set to be hit with higher prices of beer, cigarettes, fruit juice and bottled water after the Treasury proposed to increase the excise duty on these products by 10 percent in Thursday’s budget statement.
Treasury Cabinet Secretary Ukur Yatani said the higher excise, which is separate from the annual adjustment for inflation, is among new tax measures meant to help the government generate an additional Sh50.4 billion in the 2022/2023 fiscal year.
This will target goods that have a fixed excise duty like beer, cigarettes, fruit juice, bottled water, chocolate and motorcycles.
Mr Yatani has, however, excluded petroleum products from the increase, citing the current high global crude prices that have forced the government to spend billions of shillings monthly on subsidies to prevent pump prices from hitting Sh150 per litre.
It does not also affect excise duty that is variable or a share of the cost of the product like in airtime, mobile money transfers, bank fees and motor vehicles.
The Cabinet Secretary did not mention the specific items that will be subject to the increase in his speech yesterday, and instead referred queries to the Finance Bill 2021, which was yet to be made public by the time of going to press.
“This has basically nothing to do with essential products… They are all luxury items that have nothing to do with the general population of this country,” said Mr Yatani.
Sin taxes on cigarettes and alcohol have traditionally been the target of finance ministers for additional revenue, but in recent years the pool has been widened to include widely used items such as bottled water, confectionery, motorcycles and petroleum products.
Beer attracts excise at the rate of Sh121.85 per litre, while filter cigarettes attract a levy of Sh3.47 per stick. Excise on bottled water and juice is charged at Sh6.03 and Sh12.17 per litre respectively.
Kenyans are currently grappling with elevated cost of living due to higher prices of many essential goods such as cooking oil, flour, milk and cooking gas.
This has forced many households, especially in the low-income segment, to reduce their shopping basket in an environment where firms have frozen salaries as they recover from Covid-19 economic hardships.
Tax experts expected Mr Yatani to offer tax reliefs on essential items such as cooking gas and fuel, which are trading at record prices.
Inflation rose from 5.08 percent in February to 5.6 percent in March on the back of a sharp increase in the prices of key household items like cooking gas, food and petrol.
The rise in the cost of basic commodities emerges in a period when workers’ pay is yet to recover from the effects of Covid-19, which triggered layoffs and pay cuts.
The average earnings for workers in the private sector grew at the slowest pace in a decade in 2020 as pandemic-hit firms moved to slash salaries and adopt unpaid leave policies to contain costs.
“I was expecting him to say that the eight percent VAT on petroleum is suspended for the time being. I can see some of the proposals fall by the wayside because this is not the time to raid pockets through indirect taxes,” said PKF regional tax partner Michael Mburugu.
“He is raiding the sin taxes, but in Kenya, there is nothing like sin tax anymore because items like bottled water are bordering on basic food items, given that there is no clean water being piped to homes for people to drink.”
While the government has not raised actual excise duty on most items since 2019, there have been annual adjustments based on inflation.
The inflation adjustment has previously been mandatory for all excisable items attracting a specific duty. But in yesterday’s budget speech, Mr Yatani proposed to give the Kenya Revenue Authority (KRA) commissioner-general room to select products to exempt from this adjustment considering prevailing economic conditions.
This allowance for discretion has been made following the rise in fuel prices which if adjusted for inflation will have the effect of raising the cost of living at a time when many households are struggling with high food and energy bills.
Excise is also charged on other items and services such as mobile fees, bank fees and motor vehicles, but these ones attract an ad valorem tax, which is calculated as a percentage of value, hence goes up naturally with the increase of the cost of the item.