The cost of Keg beer is set to rise by up to Sh8.40 from next month after EABL signalled that it will no longer absorb the excise tax adjustment for inflation for the product that targets the lower end of the beer market.
The brewer has been shielding Keg consumers from the annual inflation adjustment since it was introduced in 2018, but now argues that it does not have the capacity to absorb additional tax increases on their behalf.
This year’s adjustment, which is made on excisable goods that attract a fixed rate of excise, has been pegged at 6.3 percent and is expected to hit goods such as alcohol products, bottled water and cigarettes from October 1.
Goods whose excise is charged as a percentage of price (ad valorem) are exempt from this adjustment since their tax naturally rises with price changes.
Beer currently attracts excise at the rate of Sh134 per litre, having gone up from Sh121.85 at the beginning of July in tax changes that were introduced in the 2022/2023 budget. This will rise further to Sh142.40 once the new tax rate is adjusted for inflation next month.
These higher excise charges are normally passed on to the final consumers by manufacturers unless they opt to absorb part of the costs in order to protect market share in competitive sectors.
“We do see prices of everything changing particularly where taxes are involved. We will look at all different levers and get extra efficiencies but we also see passing this to consumers although we are still engaging government,” said EABL chief financial officer Risper Genga.
“The market is facing a problem of illicit products flowing from neighbouring countries due to higher taxes locally. We are struggling as a country with the unpredictability of tax policies and it is something we need to solve.”
EABL also expects to adjust the prices of spirits despite fears of lower sale volumes amid the increased cost of beverages and high living expenses.
Despite the higher taxes on its products, the brewer more than doubled its net profit to Sh15.5 billion in the year ended June, helped by increased sales on the reopening of bars and pubs in the period. The company had made a net profit of Sh6.96 billion a year earlier.
Manufacturers affected by the excise taxes have also opposed the inflation adjustments, arguing that it leads to price instability and distorts the overall inflation.
Various lobbies have since 2020 consistently urged the taxman to pause implementation of the annual inflation adjustment tax that affects excisable goods, citing economic hardships as a result of the Covid-19 crisis.
The Pubs, Entertainment Restaurants Association of Kenya (Perak) has also argued that the frequent tax adjustments increase beer prices and drive most of them out of business, in addition to pushing consumers to untaxed or illicit alcohol products.
