What Will Be The Impact Of The Finance Bill 2024 On Spirits In Kenya?

The current talk in Kenya is about the Finance Bill 2024 and the harm it will do to various economic sectors across the country. Many experts and stakeholders have opposed this Bill and said that if passed into law, it will do more harm to the economy than good.

Many have described this Bill as draconian, a monster that will attack, devour, and kill millions of businesses in Kenya. Some manufacturers have even threatened to shift their businesses to either Uganda or Tanzania if the seemingly unreasonable taxes contained in the Bill will be passed into law.

One of the sectors that will be hit hard by the current bill if passed into law will be the Spirits sector (the alcohol industry). For instance, if the Finance Bill 2024 is passed into law in its current naked form, a 750 ml bottle of 37 percent alcohol by volume of a popular beverage gin in Kenya will have an excise tax of 444 shillings, up from 267 shillings.

At the same time, a 500ml Tusker Cider that used to have a tax burden of 72 shillings will now have one of 51 shillings. In a nutshell, this is the impact of the excise changes in the Finance Bill 2024; making higher-alcohol beverages more expensive.

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According to analyst Kwame Owino, “these changes herald a significant shift in Kenya’s alcohol taxation policy. These adjustments are not merely incremental; they are a comprehensive overhaul that seeks to realign the sector with the government’s revenue and economic development objectives. However, they will do more harm to the sector and the economy than the intentions within the same bill.”

As Philip Kakai, the Chair of the Institute of Certified Public Accountants of Kenya (ICPAK), puts it, “The Finance Bill 2024 seems to be aiming at the goose that lays the golden egg. It is more focused on what you can pay and how to get it, rather than on the growth of the economy, businesses, and industries.”

The proponents of the taxes on Spirits within the Finance Bill 2024 believe that the decision to increase taxes on Spirits will help cut down on alcoholism and fight illicit brews in the country. Shock on them because this is going to do exactly the opposite.

For starters, the Kenyan is losing an average of 71 billion shillings in taxes annually due to the sale of illicit alcohol. Euromonitor Consulting says that the volume of illicit alcohol sales has recorded strong growth in value around the country since 2020 to stand at 67 billion shillings. At the same time, the International Alliance for Responsible Drinking (IARD) says that up to 60 percent of alcohol in Kenya is illicit and dangerous, more than double previous estimates by the World Health Organization (WHO).

Do you know what has led to the increase in illicit brews in Kenya, most of them spirits? The mainstream ones are often expensive and out of touch for millions of Kenyans. And why are the genuine ones more expensive giving the illicit ones a field day? Taxes. And the current unrealistic taxes on the same contained in the current Finance Bill are going to make matters worse. Kenya will be the kingdom of illicit brews. This will also mean that many industries that make genuine spirits will shut down, people will lose jobs, and poverty will set in.

There is no doubt that Kenya’s alcoholic beverages industry has long been a cornerstone of government revenue, consistently contributing a substantial portion of excise taxes. From 2018 to 2023, alcohol accounted for 42 percent to 31 percent of total excise duty. The data reveals a discernible pattern: nominal excise tax revenue from alcohol has exhibited an upward trajectory from 2018 onwards, except for the 2020 -Covid period. In 2023, excise tax revenues from alcoholic beverages amounted to Ksh 51.01 billion, underscoring its significant fiscal impact.

According to the Institute of Economic Affairs (IEA), “By making high-alcohol beverages more expensive, this move aims to create a substitution effect, where consumers opt for lower-alcohol alternatives. This is based on the economic principle that consumers will alter their consumption patterns in response to changes in relative prices.”

Finance Bill 2024 spells doom for major economic sectors in Kenya.

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