Market News

Liquor tax falls as distillers differ with KRA on the cause

Times Tower, the headquarters of the KRA, in Nairobi. FILE PHOTO | NMG
Times Tower, the headquarters of the KRA, in Nairobi. FILE PHOTO | NMG 

Liquor taxes have fallen sharply in the first half of the fiscal year even as Kenya Revenue Authority and alcoholic beverage firms disagree on the cause.

The firms said sales have been falling since last September, blaming it on increased production of alcohol outside the Kenya Revenue Authority’s Excisable Goods Management System (EGMS) and sale of contraband, including banned sachet-packaged drinks from Uganda.

Increased illicit trade has included reported smuggling of ethanol into the country through the Tanzania border, which has hurt excise duty and value added tax estimated at Sh1 billion daily by the licensed manufacturers.

Commissioner for Domestic Taxes Benson Korongo, however, attributed the drop in revenue collection to drought-related shortage of molasses.

“Excise duty from locally produced spirits declined due to extended drought in the sugarcane producing areas which led to a shortage of molasses — a raw material for the production of raw spirit,” Mr Korongo said without disclosing the actual revenue collections.

“The consequence of which was increased importation of neutral spirit to 13 million litres.” One of the leading spirits distillers on January 16 provided a list of 18 firms — 14 of which have been cleared by KRA in the latest notice — claimed to be selling 205 and 250 millilitres of some of its gin, vodka and brandy products to distributors at between Sh70 and Sh75.

Officials of the Alcoholic Beverages Association of Kenya (Abak) said it was impossible to sell at those prices, citing the Sh200 excise duty per litre, VAT, Sh2.80 stamp duty and other costs such as packaging, branding and labour.

London Distillers on January 12 requested the KRA to halve the firm’s monthly payments, citing lower sales.

“Our sales have gone very low as there is a lot of counterfeits in the market. We are unable to pay Sh3 million per month and request the same to be reduced to Sh1.5 million,” the company wrote to KRA official Rose Wanjohi, saying that the taxman was losing Sh1 billion a month in possible tax revenue to illicit spirits.

Mr Korongo admitted that the taxman has in the past intercepted consignments smuggled in from Tanzania and has enhanced mechanisms for identification and interception of illicit alcohol through its mobile application dubbed Soma Label.

“We estimate that 50 per cent of all alcoholic beverages consumed in Kenya are informal and illicit,” ABAK chairman and corporate affairs manager at Kenya Wines Agency Ltd (Kwal) Gordon Mutugi said. “The government loses Sh30 billion in taxes to the trade in illicit brews.”