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KRA suffers hit as consumers spared bottled water tax

Times Tower, the headquarters of the KRA, in Nairobi. The taxman was to roll out the new tax on November 1. FILE PHOTO | NMG
Times Tower, the headquarters of the KRA, in Nairobi. The taxman was to roll out the new tax on November 1. FILE PHOTO | NMG 

The High Court has declared the planned levying of Excise Duty on bottled water, juices, soda, other non-alcoholic beverages and cosmetics unconstitutional, offering consumers relief from an impending price increment.

Justice John Mativo issued the quashing orders after he found that the Kenya Revenue Authority (KRA) and the National Treasury had not complied with the requirement of public participation and did not involve stakeholders before rolling out the tax.

“An order of certiorari be and is hereby issued quashing Legal Notice Number 53 of March 30, 2017 to the extent that it seeks to impose or introduce excise duty on bottled water, juices, soda and other Non-Alcoholic Beverages and Cosmetics,” the judge ruled.

Justice Mativo also quashed the award of the tender for the supply of the system that facilitates collection of the tax handing the Kenya Revenue Authority (KRA), which has been struggling to meet revenue target, one of its biggest setbacks in recent times.

The taxman was expected to collect at least Sh3.6 billion in revenue from the tax annually.

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The court found that the only evidence of public participation that the taxman produced were two boardroom meetings in Nairobi with no indication as to what happened in the remaining 46 counties.

Activist Okiya Omtatah had sued KRA over the tax arguing that the agency and Treasury secretary Henry Rotich had issued an irregular Gazette notice establishing Excise duty without public participation and consultation of other stakeholders.

Mr Omtatah further questioned the award of the tender for the supply of Excisable Goods Management System (EGMS) to Switzerland-based firm SICPA Securities without subjecting it to competitive procurement.

KRA was to roll out the new tax, which required manufacturers and importers to affix the new generation excise stamps on bottled water, juices, soda, energy drinks, other non-alcoholic beverages, food supplements and cosmetics from November 1 but the court suspended the roll-out pending hearing and determination Mr Omtatah’s petition. The National Assembly’s Public Investments Committee (PIC) had also summoned the KRA over the revocation of the EGMS.

PIC investigated the award of euros 158,213,898 (Sh15.9 billion at 2013 exchange rates) tender for the procurement of EGMS to SICPA Security Solutions SA Limited through single sourcing.

The committee also probed a clause in the tender documents that requires manufacturers of excisable goods to pay SICPA Sh1.50 for every stamp attached to each item – earning the Swiss firm billions of shillings annually.

The tax is paid by the manufacturer or service provider, but is borne by the consumer. Mr Omtatah argued that the duty, which would have pushed the total tax on a litre of water to at least Sh5.5 was burdensome to consumers.

The court agreed with Mr Omtatah in its finding that there is need to ensure water is not only available and accessible, but also affordable to rich and poor alike.

While quashing the award of the Sh17 billion five- year EGMS contract to SICPA Securities, the judge observed that the KRA board had terminated the initial contract to the Swiss firm after it reviewed the scope of goods targeted. “There was therefore no contract in place to be extended.”

Mr Omtatah had argued that there was no justification for collecting Sh1.5 per unit produced to fund the EGMS system.

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