KAM Protests Move To Increase Excise Duty By Over 100%

By Soko Directory Team / Published February 1, 2023 | 12:31 pm

KEY POINTS

Three months before the inflation adjustment, there was an increase in excise taxes from 1 July 2022, by between 10 and 20 percent through the Finance Act, 2022. Tax predictability is essential in encouraging investments.

KEY TAKEAWAYS

Kenya’s cost is amongst the highest in this regard with the price of the stamp and its administrative requirements costing the same as the price of the product. This continues to make Kenya uncompetitive as an investment hub.

Kenya Association of Manufacturers (KAM) has protested the proposed Excise Duty regulations that seek to increase the rates of excise stamps for bottled water, juices, and any other non-alcoholic drinks, cosmetics, alcoholic beverages, tobacco, and nicotine products, and export products subject to excise with effect from 1st March 2023.

The proposed increment up to levels of over 100 percent and beyond the current market prices of producing the stamps shall have a detrimental effect on consumers and manufacturers due to increased cost of production and the cost of finished products which will be passed on to the consumer amidst the rising cost of living.

The proposal comes barely four months after a 6.3 percent inflation adjustment on specific excise tax rates was effected on 1 October 2022, impacting cosmetics, confectionary, alcoholic, and non-alcoholic beverages including bottled water, and tobacco and nicotine products, among other products.

The EGMS stamp is a revenue assurance tool that was initiated to deter counterfeiting, ensure traceability of excisable goods along the supply chain, enable accounting to produce excisable goods manufactured or imported, and facilitate any persons in the supply chain to authenticate the stamps and excisable goods. As such the proposed drastic increase in the cost of stamps seeks to be a revenue collection mechanism as opposed to an assurance tool.

Meaningful consultative engagements, competitive bidding of suppliers, and a Joint Impact Assessment with the industry need to be conducted and, in this case, it would be on the impact of the cost of stamps on the overall cost of production. We must make cost comparisons to other countries, regionally and globally, to ensure the country remains competitive.

“We are afraid that such an increment to some of the most counterfeited items in Kenya will further encourage counterfeit and illicit trade. This will deny government revenue and put the lives of Kenyans at risk as substandard and highly dangerous goods infiltrate the market.

Subsequently, this will lead to reduced government revenue. The increment will result in low sales and in turn, have a negative effect on other revenue streams from manufacturers such as VAT, PAYE, and Income Tax among others. The ripple effects will be a downside from job creation to job losses and affect many livelihoods.

The government adopted an export-led growth strategy as part of its plan to transform the economy. At the heart of this plan is being globally competitive. The proposed costs will further make Kenyan products uncompetitive in the global market due to the high cost of compliance and unpredictable regulatory environment. This poses a great risk of suppressing the manufacturing sector’s contribution to the Gross Domestic Product (GDP) which has been shrinking over the last five years.

Predictability earns investor confidence in the country, leading to increased local and foreign investments. Sudden changes in fiscal policy and regulations divert the industry’s resource allocation from productivity to meeting the costs associated with changes toward fast compliance.

We, therefore, urge the government to retain the current charges on the excise stamps and to finalize and implement the National Tax Policy, with a focus on enhancing certainty and predictability in the tax code.”

About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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