KENYA – A proposed 67 percent excise tax hike on spirits has received strong opposition from alcohol makers in Kenya who have said such a move will cripple an industry that is already grappling with declining sales due to runaway inflation.
Through their trade lobby group, the Alcoholic Beverage Association of Kenya (Abak), the makers have further noted that the proposal made in the National Treasury’s Medium-Term Revenue Strategy will also aggravate the illicit alcohol menace currently bedeviling the industry.
According to an analysis by the East African Community (EAC) tax policy sub-committee, the tax proposals backed by the International Monetary Fund (IMF) seek to raise the minimum excise rate based on liters of pure alcohol (LPA) from the current Ksh356.40 (US$2.37) to Ksh596 (US$3.97).
Abak is proposing retention of the excise tax rates, arguing that it is sufficient to boost government revenue from alcohol as opposed to the new tax hike which may not necessarily result in higher tax collection.
“Retaining the rate of excise will result in an increase in an average growth in excise revenue of 4.45 per cent year on year from spirits depending on excise changes to other alcohol beverage categories,” says Abak in its proposal to Treasury.
The trade lobby group however notes that increasing excise tax on spirits will worsen an already dire situation, with the proliferation of illicit alcoholic brands in the market.
It says multiple rounds of excise tax increases have cut government revenue from the alcoholic beverage industry not only demonstrating a policy formulation problem but also encouraging illicit alcohol, which the government is currently fighting.
Kenya raised the excise tax on spirits by 20 percent in July last year and a further 6.3 percent the following October.
These increases followed separate hikes in 2021, significantly denting consumer wallets and turning them into illicit alcohol, Abak says.
A recent report by Euromonitor backs Abak’s claims indicating that illicit alcohol comprises 59 percent of the total alcohol consumed in Kenya, one of the highest in the world, as consumers facing constrained disposable income turn to cheaper, unregulated alcohol.
Abak has advised the National Treasury to align policy reviews with regional trade trends to avoid dumping of contraband alcoholic beverage products on account of lower prices in Uganda and Tanzania.
Uganda and Tanzania charge an equivalent of Sh99.70 and Sh260 respectively compared to Kenya’s Sh356.42 per litre.
“This creates market distortion that is encouraging contraband spirits coming from Uganda and Tanzania,” Abak says.