ABAK Faults Treasury’s Move to Tax Alcoholic Beverages

The Alcoholic Beverages Association of Kenya (ABAK) has faulted the move by the government to slap 15 percent excise duty on wines and spirits.

According to ABAK, the proposal to increase excise tax on wines and spirits by 15 percent while retaining the annual inflation-adjusted tax escalation on all categories is not only detrimental to the industry’s growth but also a drawback on the multi-agency efforts to address illicit alcohol in Kenya

According to them, the proposal by the Cabinet Secretary also reverses the desired sense of predictability in taxation for the industry that came about with the introduction of the inflationary adjustment via the Excise Duty Act, 2015.

“The introduction of the inflationary adjustment was meant to introduce predictability based on data from the Kenya National Bureau of Statistics (KNBS), providing legitimate players with certainty in their investments and business planning,” the association said in a statement.

The statement

With the revision of the tax increase cycle to annual, rather than biennial, the industry had come to expect some level of regularity in the changes to the prices of its products.

While the formula was not perfect, as it considered prices of non-excisable goods, ABAK is of the view that it was a far better way of changing the prices of formal, recorded alcohol than the announcement of price changes that historically used to come with the reading of the Budget.

While ABAK members await to make submissions to the National Assembly on the Finance Bill, the Cabinet Secretary needs to provide clarity on the publication in the Kenya Gazette of the inflation adjustment due from July 2019.

As has been noted before, the approach to regulation of alcohol in Kenya needs to be driven more towards direct interventions and to deal with alcohol-related problems, rather than the current population-driven approach.

The proposal by the Cabinet Secretary, therefore, undermines the fight against illicit alcohol of all shades and is seen as a big miss, especially when viewed against the impact of illicit alcohol as there is evidence that increasing taxes on formally recorded alcohol drives consumers in the opposite direction.

Data from the World Health Organisation (WHO) shows the per person consumption of alcohol in Kenya stood at 3.4 liters of pure alcohol in 2018, much less than the global average of 6.4 liters per person.

Of the 3.4 liters, says the WHO, 1.9 liters is recorded (legally recognized) while 1.5 liters is unrecorded (not officially recognized).

We are, therefore, not only concerned about the health risk to consumers but by the fact that illicit alcohol trade denies formal players a level-playing ground and the economy billions of revenue over time.

It also undermines the government’s stated objective of seeing manufacturing contributing 20 percent of the Gross Domestic Product (GDP), as well as forming a core part of the Big Four agenda.