The proposed Excise Duty (Excise Goods Management System) (Amendment) Regulations, 2023 seek to increase the fees of excise stamps for bottled water, juices and any other non-alcoholic drinks, cosmetics, alcoholic beverages, tobacco and nicotine products and export products subject to excise with effect from March 1.
From the onset, the position of the Kenya Association of Manufacturers (KAM) is that using excise stamps as a tool for fighting illicit trade is counterproductive.
From the baseline survey conducted by Anti-Counterfeit Authority in 2020, illicit trade rose from Sh726 billion in 2017 to Sh826 billion in 2018, despite the existence of excise duty measures.
On October 19, 2022, KAM members met with President William Ruto and a joint Kenya Manufacturing agenda 20by30 was adopted.
This is a plan to raise the manufacturing contribution to GDP from the current 7.2 percent (about Sh1 trillion) to 20 percent (about Sh5 trillion) by 2030.
This means increasing direct jobs from the current 348,000 to about 980,000.
However, with the ever-increasing and unpredictable taxation regime, uncontrolled increase in power costs, inflation, forex shortage and influx of cheaper goods from Comesa and EAC regions at zero import duty, this dream to grow manufacturing will remain a mirage as it has happened over the decades.
The proposed increment in the EGMS stamp fees shall have a detrimental effect on consumers and manufacturers due to the increased cost of production and the cost of finished products amid the rising cost of living.
The ripple effects on the economy are worse as I will expound on shortly.
Lest we forget, this proposal comes barely four months after a 6.3 percent inflation adjustment on specific excise tax rates was effected on October 1, 2022, impacting cosmetics, confectionary, alcoholic and non-alcoholic beverages including bottled water, and tobacco and nicotine products, among other products.
Three months before the inflation adjustment, there was an increase in excise taxes by between 10-20 percent through the Finance Act, of 2022.
The excise stamp was initiated to deter counterfeiting, ensure the traceability of excisable goods along the supply chain, and enable accounting of produced excisable goods manufactured or imported.
Unfortunately, the proposed stamp, while extremely expensive, does not have the “Track & Trace” capability.
Therefore, the proposed drastic increase in the cost of stamps seeks to be a revenue collection mechanism as opposed to an assurance tool.
This is based on the proposal seeking to increase the cost up to levels of over 100 percent and beyond the current market costs of producing the stamps.
Despite supporting the economy’s push to lower the cost of living, manufacturers shall, therefore, be forced to pass this new cost to mwananchi, exacerbating an already dire situation as Kenyans try to make ends meet.