Liquor traders warn new taxes will cut revenues

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Traders say persistent tax hikes leave legitimate players in the industry facing uncertainty in their investments and business planning.
The ABAK alert comes as Kenya enters the final stretch of budget making amid fears the government will target alcohol and cigarettes to drive excise tax revenue.

Beer and spirits manufacturers have raised the alarm over possible increased in taxes saying it will hit sales and State revenues while hurting the fight against illicit brews.

The manufacturers through their lobby, the Alcohol Beverages Association of Kenya (ABAK), say persistent tax hikes leave legitimate players in the industry facing uncertainty in their investments and business planning.

The ABAK alert comes as Kenya enters the final stretch of budget making amid fears the government will target alcohol and cigarettes, the main sources of ‘sin’ taxes, to drive excise tax revenue.

“Our industry is facing tough times on the back of persistent increase in excise tax. The government will have to think very hard about broadening the tax band, rather than ruining gains made in our industry over the years,” said Gordon Mutugi, ABAK Chairman.

ABAK noted that a study it commissioned last year showed that increasing the price of legitimate alcohol has been shown to push drinkers to illicit brews, and deny state taxes.

“Volumes for a number of excisable goods have been on the decline resulting in lower excise collections,” said the lobby.

The government raised excise duty on alcohol by 5.17 percent from last July raised the tax charged on wines and whisky by up 25 percent.

In 2018, the excise duty was raised by 5.2 percent, underlining Kenya’s position of having one of the highest rates of tax on beer on the continent. Close to half of Tusker’s recommended retail price goes to the taxman.

“There’s sufficient evidence to demonstrate that optimum benefits can only be derived when our products are taxed only to some point,” EABL #ticker:EABL group CEO Andrew Cowan said earlier.

EABL reported a 1 percent decline in sales of bottled beer such as Tusker in a soft economy that has delivered job cuts and stagnant wages, hurting consumers’ purchasing power.

ABAK is now encouraging bar owners to sell drinks at lower recommended prices to protect sales and stop the flow of drinkers to illicit drinks.