KRA’s Sh4bn soft drinks tax plan hurt by delays

The newly-introduced Kenya Revenue Authority’s excise tax management system for bottled water, soda and juices has hit a snag after manufacturers said they were experiencing difficulties implementing the scheme that requires all soft beverages to be affixed with excise stamps.

Manufacturers have accused KRA of doing little to enlighten them about the new tax management system more than a month after it was rolled out amidst challenges in affixing the tax stamps. The have lamented that the system has slowed down their production lines.

The system, which was rolled out last month, is meant to ramp up KRA’s revenue collection by up to Sh4 billion and increase excise tax compliance within the sector.

Despite the initial challenges that have affected production, the Kenya Association of Manufacturers (KAM) has said that it will continue to engage KRA to address the technical hitches.

KAM chief executive Phyllis Wakiaga said there was still confusion in the market without proper sensitisation that products without stamps can still be sold until the January 30 deadline set by KRA

"Since the implementation of EGMS, manufacturers have been facing challenges including high rejections by KRA printers, low turnaround time for uploading stock keeping units (SKUs) at KRA, and delays by SICPA to fix any installation issue resulting in slowdown in production," she said. "We hope that they will address the technical challenges that the sector is facing in implementing EGMS, which aims to address issues of counterfeits in the sector".

Manufacturers have also blamed the Swiss company which was controversially awarded the tender to run the stamp-fixing machinery, saying it was too slow in responding to requests for technical assistance.

Iin its notice, KRA gave the manufacturers a three-month window to clear old stocks of bottled water, juices and energy drinks, soda and other non-alcoholic beverages manufactured or imported prior to the November 13.

However, due to the challenges that the manufacturers are experiencing, some have resorted to backdating the production and expiry dates of their products to remain within the window offered by KRA as they wait for the system to be fully operational.

A spot check in major retail outlets revealed the scheme, with some brands having manufacturing date stamps dated April 2019. Only a handful of brands had the excise stamps in the retail stores within the city centre while in the small retailers located in off town areas, the stamps were almost non-existent. Roadside sellers of drinking water in Nairobi said they were not aware about the stamps.

A KRA compliance officer, who requested anonymity because he is not allowed to divulge market surveillance to the media, said some manufacturers started manipulating the system as early as September when the tax stamps’ implementation was put off at the last minute.

A section of the manufactures went to court to stop the November 13 roll out and obtained a court order on November 7, preserving the status quo until the case is heard. However, KRA ignored the order and proceeded to enforce the stamps’ compliance.

"We have seen many of them record abnormal manufacturing volumes in the weeks before the November 13 deadline," a KRA official told the Business Daily.

"Some have purportedly done more production than it is normally possible and the products are now being sold with the backdated production timelines. We will catch them when we audit their production".

KRA will now wait for the January 31 deadline to effectively enforce the tax regime with those in the know saying that some manufacturers will have avoided paying millions of shillings in tax by then.

Such schemes now threaten KRA’s ambitious target to collect Sh4.3 billion in excise tax from the manufacturers who are said to have largely evaded the tax with compliance levels below 30 percent.

KRA says there are 403 bottled water, and 42 soda and juice manufacturers but only 64 have automated production lines that would make the fixing of the stamps efficient.

The taxman had also trained 80 Market Surveillance Officers to monitor compliance but this team is a drop in the ocean considering the number of manufacturers and the bigger compliance headache the agency is already facing to enforce a similar scheme for spirits, wine and cigarettes.

Beer, wine, spirits and tobacco have been on a similar tax compliance regime with KRA since 2015 with several firms having shut down when the system began.

There are just over 20 alcohol manufacturers operating now, down from 177 when the excise tax compliance regime was rolled out.