Treasury Ignored All Inputs From Experts On Excise Duty

Kenya Association of Manufacturers has protested the gazettement and implementation of the Legal Notice No. 30 of 2023 titled: The Excise Duty (Excise Goods Management System) (Amendment) regulations 2023.

The Amendment effectively increases the rates of excise stamp fees for bottled water, juices, and any other non-alcoholic drinks, cosmetics, alcoholic beverages, tobacco, and nicotine products, and export products.

KAM and other business associations attended a public participation forum convened by Kenya Revenue Authority (KRA) and The National Treasury on the above subject matter on 1st February 2023.

During this engagement, the stakeholders present unanimously objected to the proposal published to increase the cost of EGMS stamps for the above-listed products.

“We are therefore deeply concerned that despite the public participation engagement, none or part of our submission was considered, and the legal notice is a replica of the proposals published,” said KAM in a protest letter.

The increased EGMS stamp fees up to levels of over 100% and beyond the current market costs of producing the stamps shall have a detrimental effect on consumers and manufacturers due to the increased cost of production and the cost of finished products. Unfortunately, this will be passed on to the consumer amidst the rising cost of living. 

The increment comes barely five months after a 6.3% 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. Three months before the inflation adjustment, there was an increase in excise taxes from 1 July 2022, by between 10% and 20% through the Finance Act, 2022. 

The government needs to enhance tax predictability to spur investments and growth. Tax 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.

The EGMS excise 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 new EGMS stamp fee increase is a revenue collection mechanism as opposed to an assurance tool.

“Additionally, we are concerned that this increment to some of the most counterfeited items in Kenya will further encourage the 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,” said KAM.

It is paramount that we make cost comparisons with other countries, regionally and globally, to ensure the country remains competitive. From our analysis, Kenya’s cost is amongst the highest in this regard with the price of a stamp and its administrative requirements costing the same as the price of the product (see table below for EAC countries). This continues to make Kenya uncompetitive as an investment hub.

Related Content: KAM Protests Move To Increase Excise Duty By Over 100%