More Pain Ahead of KRA’s Increase of Excise Duty By Up To 5% on Water

Kenyans are in for a difficult ride ahead as Kenya Revenue Authority (KRA) is set to increase excise duty charged on a variety of goods including water, beer, cigarettes, wines, and spirits among others by up to 5.0 percent effective August 2018.

In the new tax system, excise duty will be rising in tandem with inflation thus reflecting the current economic reality as well as ensure that excise rates charged do not erode the public’s purchasing power during periods of inflation.

The move is in accordance with the Excise Act that was passed in 2015 but has not been implemented since then, due to fears of price instability as it would lead to a rise in prices of basic commodities in the country and a net effect of inflationary pressure.

The new tax system is set to be a boost to the government’s effort of increasing revenue in the 2018/2019 financial year by 17.5 percent to 1.9 trillion shillings from the 1.7 trillion target in the 2017/2018 financial year.

The move is set to widen of the tax base through various tax reforms as outlined in the Finance Bill tabled in parliament, as the excise duty increments will be automatic and will not require any additional approval from Parliament.

Excise duty on petroleum products was however not adjusted with the expected introduction of 16.0 percent VAT tax from September, as it would further escalate fuel prices in the country, which are already expected to rise.

Cytonn have also projected the inflation rate for the month of July to come in between 4.9 percent – 5.3 percent from 4.3 percent in June.

The y/y inflation rate is expected to increase as a result of a base effect while m/m inflation is expected to rise mainly due to:

1. A rise in electricity costs due to an increase in forex and inflation charges to 1.2 shillings per kilowatt hour (kWh) and 0.5 shillings per unit from 1.1 shillings and 0.4 shillings in the previous month, respectively. Fuel levy linked to power produced by diesel generators has continued to drop, though marginally in July by 0.2 shillings to 4.6 shillings attributed to increased HEP generation due to the heavy rains experienced in the 1st half of the year reducing reliance on diesel-generated electricity.
2. An increase in the price of petrol by 3.1 percent due to an increase in super petrol landing cost by 5.5 percent which will result in a rise in the transport index. Prices of diesel and Kerosene, however, have decreased by 0.3 percent and 1.8 percent brought about by a decline in landing costs for diesel and kerosene by 1.1 percent and 1.9 percent respectively. Charcoal prices are also expected to rise attributed to the enforcement of the anti-logging.