Manufacturers will not bear cost of new excise goods system

Manufacturers of excisable goods are up in arms over a Kenya Revenue Authority (KRA) directive to install a new e-tax system.

The so-called excise goods management system, being installed by Swiss contractor, SICPA, is alleged to cost Sh1.50 per excise stamp and will force factories to make costly adjustments to production lines.

The ‘Business Daily’ spoke to Alice Owuor, KRA commissioner of domestic taxes, to shed more light on the matter. Here are the excerpts.

Manufacturers say the installation is very expensive and costs them about $1 million (Sh101.6 million) to modify one production line. Why isn’t SICPA or KRA bearing the cost of installing this system?

To put the matters in perspective, KRA (Kenya Revenue Authority) wishes to state that rollout of the Excise Goods Management System has been a three year consultative journey.

Various scenarios were considered and agreed upon during several stakeholder sessions held as part of the rollout process. Indeed, the installation of the EGMS Secure Coding Line (SCL) on existing bottling lines is a cost that will be borne by the KRA.

As per the licensing schedule for all Excise Manufacturers, the production process should be designed as per global standards to facilitate proper accountability. For this reason, any modification required by any manufacturer, should be seen against the excise licensing regime and not essentially on the EGMS implementation.

What is the justification for this new system and why should Kenyan consumers accept it despite its possible implications on the cost of excisable consumer goods?

The decision to introduce excise duty stamps is set out in the Excisable Goods Management System Regulations 2013, which requires marking and tracking of all excisable products.

The introduction of the system follows consistent findings that show some manufacturers and importers have consistently evaded payment of taxes on the excisable goods they offer for sale. Evidence has also found excisable goods existing in the market whose origin is not known.

Illicit trade or tax frauds doesn’t only cost the government billions of shillings in lost income, but also pose serious health risks to consumers of products that do not meet the required standards.

The new tax stamp represents a sign of authenticity to consumers as well as securing tax income which is rightfully due. 

The decision to extend marking and tracking to this wider range of products now, reflects the success of the project covering (tobacco products, wines and spirits) and the EGMS (Electronic Goods Management System) that has been in place since April 2013.

Application of this new system on the specific products has resulted in an increase in revenue of about 40 per cent.

Manufacturers say the system will also force a redesign in the labelling of products, why is this so?

As per the guidelines, issued by the authority, the manufacturers, are required to adapt the current design of the beverages packaging, to make the code printed on them machine readable by a smartphone or related hand-held device applications.

That should enable the public to verify the direct coded products by means of a phone.

Consequently, all Excise Manufacturing compliant beverage manufacturers have been issued with guidelines describing the colours that are allowed to be used in the composition of the caps or quiet zone. The EGMS system will mark bottles, tetra paks and cans.

Is it true that manufacturers have been forced to pay SICPA Sh1.50 per bottle affixed with the excise stamp? How does SICPA plan to share this with KRA?

This is not correct. Once again, it’s important to clarify that SICPA, is a technical service provider contracted by the authority.

As a technical service and solution provider, SICPA is compensated by KRA. This means that manufacturers will not pay SICPA any money. The Sh1.50 routinely mentioned applies to the statutory excise stamp values.

These values are applied as per the existing law. KRA, as you may be aware is not a law making body and only serves to apply laws passed by Parliament.

What is the total number of factories in where SICPA is putting up the EGMS system?

The systems integration will apply at all the four licensed beer manufacturers, 16 juices and other non-alcoholic beverages manufacturers, six soft drinks (sodas) manufacturers and 38 water manufacturers. System installation shall be on all current and future production facilities.

Manufacturers have also expressed fears that once SICPA is allowed into their premises, they will be exposed to intellectual property theft as nothing prevents the contractor’s staff from  conducting corporate espionage as they have demanded unfettered access to production lines and data

Such claims have no basis, as the role of SICPA at the respective factories will purely be limited to installation and system alignment.

We fail to understand what corporate espionage SICPA would be seeking to undertake on a shut production line.

Within the integration process, SICPA, will be installed on each automated production line the SCL which prints an EGMS secure unique code and a Human Readable Code directly on each product.

Does SICPA have an office in Kenya? How many engineers do they have locally who can respond to outages and maintenance of the EGMS?

SICPA, is a reputable global service and solutions provider with the necessary technical and customer care capacity.

As the service provider for the EGMS solution, SICPA, has undertaken and duly provided the KRA with the necessary guarantees to manage this project.

SICPA, has also signed a detailed service level agreement backed by a solid redundancy solution to ensure the manufacturers smooth operations. KRA, has the full confidence in SICPA’s technical and related capacity to deliver on this project.

Are manufacturers responsible for the maintenance of the system in the event of breakdowns?

The EGMS solution, once installed will be solely maintained and serviced by SICPA engineers. Manufacturers will not have any responsibility to handle the SICPA system.

The system is designed to provide a trigger to the central operations centre in the event of a breakdown, effectively providing for a remote or on site management where necessary.

Was this EGMS part of the tender SICPA won in December 2012 to supply KRA with excise stamps?

Yes, this is a continuation of implementation of the contract arising from the award in December 2012.

What is the projected number of excise stamps to be issued daily once the EGMS is rolled out?

This will be subject to a manufacturer’s daily production capacity.

When is the deadline for manufacturers to install the EGMS?

The deadline for beer manufacturers has already lapsed as the implementation phase for the same had been set for February 1.

Consequently, the authority has notified manufacturers, importers, distributors, retailers of beer as well as the public that old stocks of beer manufactured or imported before February 1, 2016, without excise stamps or codes affixed on, will only be allowed in the market until March 31.

The authority, will also, be providing a public notice, for non-Alcoholic manufacturers in due course.

It is instructive to note that the stakeholders, under the auspices of the Kenya Association of Manufacturers are currently engaged in stakeholder consultations on the implementation modalities.

Is the EGMS mandatory for all manufacturers producing excisable goods? Or is it only for the category of goods brought into the excise bracket in December — that is beer, juices, water?

EGMS, is mandatory for all excisable goods. The implementation, is however, phased.

How will EGMS be installed at craft breweries which typically serve customers at the point of production?

A solution for such applications is also available and will be integrated into such breweries. Such installations will not require the external pack markings but will still need the input schematic as provided in their production flow chart.

Such a flow chart is part of the licensing requirements for excise manufacturers.