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Yearly tax will increase illicit drinks, warn beer makers

Beer
Beer is currently charged excise at Sh100 per litre. FILE PHOTO | NMG 

Alcohol manufacturers and dealers have faulted Treasury proposal to raise excise duty on beer yearly for inflation, warning of a possible spike in the flow of illicit low-cost brew.

The Alcoholic Beverages Association of Kenya (ABAK) reckons the annual tax increments would push the majority low-end consumers to low priced, unregulated liquor and hurt dealers along with the taxman in foregone revenues. It would also undermine government’s ongoing efforts to fight counterfeits, they say.

The Finance Bill 2018, whose passage will bring into force a raft of budgetary tax changes, proposes the annual raise of the sin tax on beer, cigarettes and petroleum products.

“Due to its elasticity, consumers always respond to alcohol price changes. This causes a spiral effect on production and supply chain, on jobs, government revenue and the overall performance of the economy,” the association said in a note.

“The local production decline will in turn result to job losses and negative effect on the GDP (gross domestic product).”

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The association, whose members include the Kenya Breweries Ltd and Heineken East Africa, have asked the Treasury to instead align alcohol taxes charged in Kenya with those in the region, deemed lower and friendly to investors and consumers.

The lobby says a higher tax regime would only serve to thicken the flow of smuggled liquor from neighbouring low-tax regimes.

“Align our taxes with the region especially on spirits to avoid smuggling and hurting consumers of low value products,” the dealers say.

Beer is currently charged excise at Sh100 per litre, spirits at Sh200 a litre while wines attract a levy of Sh150 per litre.

The dealers said the excise levy on alcoholic drinks should be differentiated based on the alcohol content of each drink as opposed to a blanket charge.

“For instance, a beverage containing two per cent alcohol content should not be subjected to the same excise duty as a beverage containing 20 per cent alcohol content. Similarly, a lower social-economic tier targeted beverage should not be taxed at the same rate as beverages targeted at the high tier in the market,” they added.

“This is in adherence to the principle of equity in taxation.”

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