If Parliament Cares, The Excise Tax Plan Should Be Killed On Arrival

No nation has ever succeeded by overtaxing her already emaciated and dying population. What is the use of trying to milk an already dead cow? It seems as though the government of Kenya only cares about the taxes collected but gives no damn about the state or condition of the source.

Kenya has some of the worst tax regimes that are tailored towards punishing and killing businesses as compared to other countries within and without Africa. No wonder potential investors are either scared of setting up a base in Kenya or relocating to other countries such as Rwanda and Tanzania.

Each year, thousands of businesses in Kenya are closing down. In a nutshell, about 450,000 small businesses die each year. This means about 30,000 are dying monthly and about 1,000 are closing down daily. With the advent of the Covid-19 pandemic, the numbers might be higher than those being quoted.

As businesses continue to struggle with the high taxes, and effects of the Covid-19, among other issues, the government is about to drive the last nail into their coffin through the Finance Bill. If the bill will be allowed to sail through the National Assembly, then the government would have succeeded in increasing the excise tax on beer by 45 percent and spirits by 55 percent. Tell, what kind of business can survive with that?

At the same time, the same bill proposes an excise duty on glass bottles of 25 percent, and a 15 percent excise duty on alcohol advertising among other ridiculous proposals. Have the proponents of this Bill considered the effects of this proposal down the value chain?

It should be noted that with the increase of the excise duty, the alcohol and beverage sector will be as good as doomed. The alcohol industry in Kenya has lost 1 million hectoliters of beer in the last 10 years. It has been demonstrated from Kenya National Bureau of Statistics (KNBS) Economic Survey 2021 data that beer contribution to excise duty revenue has been declining over the years. This is evidence that the tax rates have gone beyond the revenue-maximizing levels (i.e., KES 100/liter) for beer and further increases will continue to result in declining government revenue.

Who doesn’t know that Beer is the primary consumer of barley produced in Kenya? With the decline in beer volumes, barley farmers have been forced to cut down on production or incur significant losses. KNBS data has demonstrated that there has been a 6.5 percent decline in barley production in the last 10 years. This has adversely affected farmers in Narok, Meru, Uasin Gishu, and Nakuru counties. The proposed excise increase is projected to reduce Barley production by 5,200 tonnes translating to a loss of 1.2 billion shillings in income for farmers in the coming year.

How can you justify a 55 percent excise tax increase on a commodity with an income elastic demand within such a short period? Has the minister considered the likely impact on the broader macroeconomy: jobs, the price level, and growth? Did he consider what these ridiculous proposals will do to the economy that is already struggling?

It appears the proponents are not aware that the excise duties will increase consumer prices of the taxed commodities, thereby lowering consumer demand for the products. Businesses are just trying to find a landing after the Covid-19 pandemic. A good government would be thinking of policies that are tailored towards helping them and the economy recover. But no. They have to tax them to death.

If MPs really care about the economy, this bill must be killed on arrival.

Read More: Beer Prices To increase In New Excise Duty Adjustments