Background

In Kenya, specific excisable goods include petroleum products, motorcycles, cosmetics and beauty products, jewellery, soft drinks, beer, wines and spirits, chocolate, and bottled water.

Several attempts by excisable goods manufacturers to change the period of excise duty inflation adjustment (from annual to at least every 2years) without any success. 

This has led to increase in production costs and illicit trade of excisable goods, negative impact on consumer health and livelihoods, increased unemployment, increased enforcement cost against illicit trade for government, loss of revenue for both industries and govt. and declining investment & productivity in manufacturing.

What is changing in the Finance Bill 2022?

1.     The Finance Bill proposes to increase taxes on motorcycles, cosmetics and beauty products, jewellery, beer, wines and spirits, chocolate, sodas and bottled water. 

·       Specifically: duty on a motorcycle unit will be raised to Sh13,403.64 per unit, up from Sh12,185.16 -10%, beer - 10%, spirits - 20%, glass - 25% (both imported and locally produced), alcohol advertising fees - 15%, cosmetic and beauty products - 15%. Include soda rates 

2.     The Commissioner General (Kenya Revenue Authority), who’s role is collection of taxes is also going to have the power to decide who he can exempt from excise tax increases (This is a clear conflict of interest) 

3.     Businesses that have tax disputes will be hard hit by a proposal for them to deposit 50% of the disputed tax amount when they appeal to the High Court from a decision by the Tax Appeals Tribunal. This is meant to discourage taxpayers the opportunity to seek judicial redress if they are unhappy with a TAT (Tax Appeals Tribunal) ruling which is unconstitutional and against fair administration and access to justice

4.     Capital gains tax will increase from 5% to 15% meaning that you sell an asset that has gained in value you will pay an increase tax by 10%. 

 

Why should Kenyans care about the above changes?

1.     High cost of living and hyperinflation - Excisable products will become more expensive and out of reach with the cost of living spiralling out of control. Disposable income is already negatively impact by external economic factors and the government, in passing high increases of taxes, will make the situation worse for excisable products. Since these excisable goods form a considerable percentage of the Consumer Price Index (CPI) which determines inflation, this will lead in the escalation of inflation

2.     Increased unemployment targeting most vulnerable groups in society– a lot of the pubs, farmers, boda boda, factory workers and hospitality industries that benefit from sale of excisable goods will scale down operations to manage increasing fixed cost hence increase unemployment.

3.     Kenya government is inadvertently promoting to importation and not local production by increasing taxes – oil marketers prefer exports to local sale due to taxes, contraband alcohol products from Uganda and Tanzania continue to increase due to tax disadvantage in Kenya, increased cost of beverages excise tax on locally manufactured beverages will not affect imported finished products. 

4.     Closure of some manufacturing industries e.g. glass manufacturers as they become uncompetitive vis a vis importers

5.     Illicit trade  – a simple such on google search using the words “illicit KRA” will show you how much the government is investing taxpayers’ money on controlling illicit excisable goods.

6.     Consumer health and safety - Do consumers know what products they are taking? When local taxes increase combined with high unemployment prompts unscrupulous traders to find cheap and most often illegal alternative to sell excisable goods. This has and will continue to negatively impact consumer health, increase criminal activity 

7.     Public funds contributed by taxpayers are used in fighting a problem that the government has control over.