KENYA – Beer and spirits manufacturers in Kenya have raised an alarm over possible increase in taxes saying it will hit sales and State revenues while hurting the fight against illicit brews.
The manufacturers through their lobby, the Alcohol Beverages Association of Kenya (ABAK), say persistent tax hikes leave legitimate players in the industry facing uncertainty in their investments and business planning.
The ABAK alert comes as Kenya enters the final stretch of budget making amid fears the government will target alcohol and cigarettes, the main sources of ‘sin’ taxes, to drive excise tax revenue.
“Our industry is facing tough times on the back of persistent increase in excise tax. The government will have to think very hard about broadening the tax band, rather than ruining gains made in our industry over the years,” said Gordon Mutugi, ABAK Chairman.
ABAK noted that a study it commissioned last year showed that increasing the price of legitimate alcohol has been shown to push drinkers to illicit brews, and deny state taxes.
“Volumes for a number of excisable goods have been on the decline resulting in lower excise collections,” said the lobby.
The government raised excise duty on alcohol by 5.17 percent from last July and tax charged on wines and whisky went up by 25 percent.
In 2018, the excise duty was raised by 5.2 percent, underlining Kenya’s position of having one of the highest rates of tax on beer on the continent.
Close to half of Tusker’s recommended retail price goes to the taxman. “There’s sufficient evidence to demonstrate that optimum benefits can only be derived when our products are taxed only to some point,” EABL group CEO Andrew Cowan said earlier.
EABL reported a 1 percent decline in sales of bottled beer such as Tusker in a soft economy that has delivered job cuts and stagnant wages, hurting consumers’ purchasing power.
ABAK is now encouraging bar owners to sell drinks at lower recommended prices to protect sales and stop the flow of drinkers to illicit drinks.
Keroche Breweries to settle US$88.4m tax dispute
In other related news, Kenya’s second largest brewer, Keroche Breweries risks having its assets seized after the Kenya Revenue Authority (KRA) secured victory at the tax tribunal to collect Sh9.1 billion (US$88.4m) from the troubled brewer.
The taxman announced that it had won an appeal filed before the Tax Appeals Tribunal in 2015 and 2017 by Keroche, allowing it to proceed with the collection of the outstanding taxes.
The tribunal’s judgment was delivered on Monday, 9th March, setting the stage for a fresh round of court cases as the KRA pushes to enforce the tribunal’s order.
The taxman has hinged its aggressive action on the Tax Procedures Act, which empowers it to seek taxes directly from third parties like banks, employers and suppliers as well as seize and auction property to recover unpaid tax.
Keroche said it will escalate the tax battle with the KRA to the High Court and Court of Appeal.
The brewer who started by making spirits and wines in 1997 before diversifying into beer in 2008, has termed the KRA’s announcement to enforce the tribunal’s decision premature.
“The dispute process is yet to be concluded. In any case we as Keroche Breweries are dissatisfied with the decisions arrived at by the Tax Dispute Tribunal,” Keroche said in a statement.