KENYA – The Alcoholic Beverages Association of Kenya (ABAK) has issued a stern warning about the potential adverse effects of the proposed Finance Bill 2024 on the alcoholic beverage sector.
According to the Association, certain provisions in the bill, including increased taxes, could drive manufacturers out of the country and push consumers towards illicit brews.
The Finance Bill seeks to amend the Excise Duty Act by deleting Section 14, which currently allows local manufacturers to claim tax paid on inputs.
Eric Githua, chairman of ABAK, stated: “The net effect of this is that local manufacturers will be subjected to double taxation of the products at the input stage and at the finished goods stage, whereas imported products will only be charged excise tax on the finished goods.”
Githua further explained that removing tax relief on inputs would increase the cost of locally produced spirits, making them less competitive and potentially stifling local manufacturing efforts.
He warned that this could turn Kenya into a net importer of excisable products, making the country uncompetitive within the East African Community and encouraging cross-border illicit trade.
Industry stakeholders have also voiced concerns that the proposed excise tax increases could drive more consumers towards illicit alcohol. For spirits with an ABV between 37 percent and 45 percent, excise duty per liter would rise to Kes592 (US$4.53), and for those with an ABV of 45 percent, it would jump to Kes720 (US$5.52) per liter.
Last year, the sector was spared an increase in the tax in the Finance Act as the National Treasury awaited the results of a study conducted in partnership with the University of Copenhagen and the Africa Economic Research Consortium.
The study found that beer had already reached its maximum taxation level and recommended a shift in taxation approach to tax based on alcohol content.
A recent Euromonitor study revealed that illicit alcohol already accounts for up to 59 percent of the local market, costing the country an estimated Kes71 billion (US$533.83M) in lost taxes annually.
Local manufacturers like East African Breweries Limited (EABL) have also expressed concerns that the new tax regime could make local production untenable, potentially forcing manufacturers to relocate to countries with lower tax regimes.
The ABAK and local manufacturers are calling on the government to reconsider the proposed changes, emphasizing that the double taxation would violate taxation principles and reduce Kenya’s export competitiveness.
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