Economy

Relief for consumers as KRA postpones new tax

james mburu

KRA Commissioner General Githii Mburu. FILE PHOTO / NMG

The Kenya Revenue Authority (KRA) has postponed taxes on bottled water, juices, soda and other non-alcoholic beverages as well cosmetics in a move that has come as a relief for both consumers - who are burdened by heavy taxation - and manufacturers grappling with high costs of doing business.

The listed goods, whether imported or manufactured locally, were to be affixed with excise stamps as from Saturday, September 1, as provided for the the Budget speech read by the then Treasury CS Henry Rotich in June.

However, a Kenya Gazette notice that was to impose the excise stamps was suspended at the weekend, providing much-needed but temporary relief for consumers and manufacturers.

Had the tax been imposed, it would have raised the cost of the goods by between 50 cents and Sh2.80 per bottle.

This would have raised the cost of the goods, as well as inflation, while increasing production costs.

According to industry estimates, this would have pushed small-scale manufacturers out of business or made their products uncompetitive.

On Monday, manufacturers welcomed the suspension, saying it gives them an opportunity to iron out the issues they have raised.

"We are hopeful that the postponement will provide KRA with ample time to resolve all concerns raised by manufacturers," Phyllis Wakiaga, CEO of the Kenya Association of Manufacturers, told the Business Daily.

Skewed clauses

To ensure that they complied with the tax regulations -- known as The Excisable Goods Management System (EGMS) -- manufacturers would have been required to install blowers that dry bottle caps before they are coded.

In addition, they were to build server rooms, lay fibre optic cables and install a software that would then have made them compliant.

EGMS is being implemented by SICPA Securities Solutions, a Swiss multinational which was controversially awarded the tender in 2013.

Members of Parliament had earlier raised concerns over skewed clauses in the Sh17 billion contract. Manufacturers also opposed it.

"When installing and making adjustments to accommodate the EGMS system, manufacturers will need to bring in experts from the manufacturers of the equipment (OEMs) from outside the country to be present during the installation on the lines so as not to void the warranty.

Average industry estimates for getting the OEMs to be present will cost about 150,000 Euros (Sh17.3 million) per line," the manufacturers' lobby group, KAM, had said earlier.

KAM had said that the proposed taxes would have increased the cost of the targeted products, thus hurting consumers and the industry as well.

The suspension of the tax comes as a blow against the National Treasury, which is seeking to raise Sh242.2 billion in excise taxes in the 2019/2020 financial year.

The target had been raised from the Sh201.1 billion set for the previous year.

Had the tax been implemented on schedule, KRA would have collected an additional Sh3.6 billion after the introduction of the additional excise stamps.

Temporary decision

While suspending the tax, KRA said the temporary decision was meant to give manufacturers time to install the neccessary infrastructure to support the system.

"KRA informs manufacturers, importers and the public that the Go-Live of Excisable Goods Management System (EGMS) on bottled water, juices, soda, energy drinks, non-alcoholic beverages, food supplements and cosmetics that was scheduled for 1 September 2019 has been postponed to allow manufacturers to complete installation," the taxman said in the notice published in newspapers at the weekend.

The move comes as KRA, which has perennially missed tax targets, moves to seal revenue leakages against the backdrop of ever higher collection targets set by the Treasury.

Past attempts by KRA to roll out the system have failed after its implementation was opposed in court.

Elizabeth Odundo Meyo, the KRA commissioner for domestic taxes, had earlier said that the agency was engaging manufacturers for a smooth roll-out of the system.

"KRA will carry out sector-based and general public participation fora on EGMS. The fora will target licensed manufacturers, importers, distributors and retailers of bottled water, juices, soda and other non-alcoholic beverages and cosmetics," she had said at the time.

Tax evasion

KAM had, however, said that the system would be ineffective in addressing the tax evasion practices that the taxman was seeking to remedy.

"Whilst the EGMS seeks to combat illicit trade and authenticate excisable goods, the implementation of the system will have a negative impact on industry by raising operating costs and capital expenditures, thereby significantly increasing the cost of doing business, which ends up raising the cost of living for Kenyans," KAM chairman Sachen Gudka had said.

KRA, now under the new Commissioner-General James Mburu, is expected by the Treasury to collect Sh1.938 trillion in tax and other revenue in the current financial year. Last year, it collected Sh1.58 trillion against a target of Sh1.81 trillion.

KRA had said that extending the use of excise stamps to the non-alcoholic sector was mainly informed by the need to address concerns on unregulated products as well as to enhance revenue collection.