KENYA – Kenya’s alcoholic drinks market could see illicit alcohol dominate up to 70 percent of the sector, as warned by industry stakeholders.
This warning comes as the Treasury proposes to increase excise tax on spirits by up to 79.9 percent in the Finance Bill 2024.
The proposed tax increase could lead to seven out of every ten bottles of whisky or hard liquor sold in Kenya being illicit and counterfeit. Such products are produced illegally, outside of the approved and regulated processes of registered manufacturers.
Manufacturers and industry players assert that the proposed tax hikes will nearly double the prices of alcoholic beverages, pushing them out of reach for many consumers and driving them towards cheaper, illicit alternatives.
The Finance Bill 2024 proposes a new method for calculating excise taxes on beer, wine, and spirits based on their Alcohol by Volume (ABV), moving away from the current flat excise rate.
Under these new measures, the average excise rate would increase from Kes356.42 (US$2.68/0 to Kes640 (US$4.81), affecting 95 percent of the spirits portfolio. The most common consumption, at 40 percent ABV for 250ml bottles, would see a price increase of at least Kes100 (US$0.75) per 250ml bottle.
Local manufacturers, such as East African Breweries Limited (EABL), have expressed concerns that the new tax regime could make local production untenable. EABL pointed out that manufacturers would face double taxation, as they would have to pay excise duty on both the inputs and the final product.
This, they argue, would violate taxation principles and reduce Kenya’s export competitiveness, potentially forcing manufacturers to relocate to countries with lower tax regimes.
The proposed changes also affect the excise duty on ethanol or Extra Neutral Alcohol (ENA), shifting to an ABV calculation and raising the duty from Kes356 (US$2.68) per liter to Kes1,600 (US$12.03) per liter. Additionally, manufacturers will no longer be able to claim back this excise duty, leading to increased costs passed on to consumers.
A recent study by Euromonitor revealed that illicit alcohol already accounts for up to 59 percent of the local market. The proliferation of illicit alcohol costs the country an estimated Kes71 billion (US$533.83M) in lost taxes annually, according to the Alcoholic Beverages Association of Kenya (ABAK).
Industry stakeholders warn that if the proposed excise tax increases are implemented, more consumers will be driven towards illicit liquor. For spirits with an ABV between 37 percent and 45 percent, excise duty per litre would rise to Kes592, and for those with an ABV of 45 percent, it would jump to Kes720 per litre.
The Finance Bill also includes provisions that would require excise duty payments within five days, rather than the current 24-hour requirement. While this extension offers some reprieve, industry players argue that it still poses significant administrative and financial burdens.
ABAK has proposed that the excise rate increases be staggered over the next four years to prevent market collapse. They also recommend reverting excise tax submission deadlines to the 20th of each month to allow for adequate collection time across the value chain.
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