Kenya Breweries Limited (KBL) will increase the price of its bottom-end beer, Senator Keg, by Sh10 for the 300ml mug in response to the Treasury plan to increase tax on sorghum-based alcoholic drinks.
This comes as the brewer reels from the impact of temporarily closing the refurbished Kisumu plant due to lack of demand as a result of measures to curb coronavirus.
KBL closed the factory on March 23 after the government ordered bars shut to contain Covid-19, making it impossible for keg to be sold since it has no take-home option as is the case with beer and spirits.
The firm says the proposal by Treasury to reduce excise duty remission on millet, sorghum and cassava from the current 80 per cent to 60 per cent will slash demand for Keg by more than half at a time when the brand is already staggering from Corona containment measures.
The cut will reduce the discount on excise duty on Keg from the current 80 percent to 60 percent, leading to additional taxes.
KBL managing director Jane Karuku wants the National Treasury to drop the proposal, warning that it will see the firm lose more consumers to illicit brews, rendering the Sh15 billion Keg-exclusive Kisumu factory redundant.
She says in submissions to CS Ukur Yatani that current restrictions on sale of alcohol to mitigate the spread of coronavirus was going to cut sorghum demand by 58 percent but a reduction in forgiven tax will take that to 84 per cent.
“The reduction will be due to excise-driven increase in the price of a single 300ml serve of Keg beer by 35 percent or Sh10 from an effective consumer price of Sh28.50 to Sh38.50,” said Ms Karuku.
Keg has grown to be among revenue drivers for East African Breweries (EABL) #ticker:EABL.
Senator Keg closed financial year ended June 2019 as the fastest growing brand, having added Sh3.7 billion in revenues as its net sales jumped by a third.
Ms Karuku says Keg value chain has completely collapsed on Covid-19 measures and a rise in excise duty will make it hard for demand to recover even when bars reopen, leading to closure of Kisumu plant.
She said the Kisumu will be operating at 20 percent capacity, rendering the investment untenable.
Excise duty remission was at 30 percent in 2004 but the government increased it to 100 percent in 2006 to support local manufacturing and discourage illicit brew consumption.
However, this was halved in 2013, causing Keg volumes to plummet by 59 percent in 2013/2014 financial year. The remission was raised to 90 percent in 2015 then cut to 80 percent the following year.