At the plant in Ruaraka where they produce spirits, the two newest lines are ran by entirely female crews. They were producing the popular Chrome Gin brand last Tuesday when journalists were taken on a tour of the plant managed by UDV Kenya, which is part of Kenya Breweries Limited.
Most of the work at the plant is automated, from the machine filling up the clear glass bottles with the clear liquid to the labelling, and on to the machines that fix them with the stamps showing that the required excise duty has been paid.
It might look and sound good, but the top management at one of Kenya’s biggest manufacturers are not happy, for two main reasons: reducing volumes and the threat of illicit alcohol.
At a session with the media later, KBL Managing Director explained that while the Treasury was wise not to increase Excise Duty on alcohol via the Finance Act this year, this situation might not last for long.
“For a long time, we have been engaging with the powers that be, to say that there is a very clear distinction between increasing taxes and returns to the Exchequer. It is not necessarily true that when you increase taxes you increase returns to the Exchequer,” said Mr Ocitti.
In a presentation to the National Assembly’s Finance Committee, the Kenya Revenue Authority reported that while taxes collected by KRA from beer increased by 7.3 percent during the period, fuelled by the government’s move to hold excise tax, spirits revenue performance dipped for the first time in years.
Mr Ocitti said the sector has been alarmed by a proposal by the Treasury via the Medium-Term Revenue Strategy to increase Excise Duty on spirits by 67 per cent.
“We think that a move like that would be very dangerous for the industry, the government and for the people as well. Excise is a consumption tax and when government increases excise we pass it on to the consumer. When the consumer is cash squeezed, they go to illicit,” said Mr Ocitti.
Already, according to a study by Euromonitor International published earlier this year, more than half of the alcohol consumed in Kenya is illicit, much of which is in the form of spirits, whose ingredients are suspicious.
Spirits have faced double-digit annual excise tax increases since 2015, deepening an affordability problem that has now been worsened by runaway input costs such as ethanol – up 61 percent during our last financial year, among others.
To help avert the imminent threat, said Mr Ocitti, the ideal for the industry would be to hold off on the plans to increase Excise Duty and keep them steady to encourage growth and the uptake of legitimate products.
The industry’s stability has also been threatened by a new legal requirement to make excise payment within 24 hours, compounding its players’ cashflow positions at a time cost inflation is hitting the manufacturing industry hardest.
Mr Ocitti said the provision to pay Excise Duty in advance has been difficult to implement.
“It is a nuisance and cumbersome. It is a burden on our cashflow and a burden on our overheads because we have had to create a whole new back office. We are lucky because we are a big organisation and we can handle it and my worry is for a smaller business that would not have that capacity,” said Mr. Ocitti.
The provision was introduced at the final stages of this year’s Finance Act on the basis that it would help tackle illicit alcohol. Excise Duty returns were previously done monthly, and the new requirement means that the taxes are paid in advance, even on weekends.
Mr Ocitti said the current taxation rates are a tipping point, where an increase would result in diminishing returns for the taxman, with the risk of a decline.
“Apart from a deliberate plan to eliminate illicit alcohol, this industry sustained tax breather and we have seen the immediate impact in the current financial year. We need a longer, predictable environment at a time when manufacturers are facing multiple external supply shocks, currency depreciation and depressed consumer spending,” said Mr. Ocitti.
Earlier in the year, the business reported that the average monthly consumer spending on alcoholic beverages reduced by 5 per cent in the periods before and after Covid-19.
