Alcohol manufacturers have strongly opposed the move by the Government forcing them to pay excise duty in advance, stating it will spur the production of illicit alcohol in Kenya.
The Alcoholic Beverages Association of Kenya (ABAK) said compelling legal alcohol manufacturers to pay excise duty within 24 hours upon removal of goods from the stockroom is a policy proclamation that will punish innocent players due to failures in managing illicit alcohol in Kenya.
They said that while the proposal, which was not taken through public participation and only inserted in the Finance Bill by the National Assembly’s Finance Committee, was meant to help prevent the trade of illicit alcohol, it is more likely to end up promoting it.
ABAK chairman Eric Githua said the introduction of the provision via the Finance Bill was unnecessary as the current model, where manufacturers remit the tax after the reconciliation of sales, is working.
Excise duty is a consumption tax that needs to be charged at the point of consumption. In the alcohol industry, the product passes through a value chain comprising of distributors and the outlets before it is consumed.
“Our members have remained compliant in remitting excise duty, playing their part in building Kenya’s economy even in the current tough economic times. Implementing the advance payment effectively is a counterproductive, unperceptive move that will hurt legal manufacturers debilitatingly and benefit illicit alcohol dealers who do not pay taxes, anyway,” said Mr Githua.
The proposal was picked up by the Finance Committee after a submission by the Illicit Alcohol Prevention Taskforce.
ABAK argued that the proposal ought to have been subjected to public participation and the views of industry players sought as it demands that they make major changes to their ways of working yet it was not in the original Finance Bill.
“You do not stop errant alcoholic beverage dealers by making it harder for legal manufacturers. The government should be doing all it can to unearth the source and movement of ethanol and eventual making of this harmful alcohol. So far, it is evident that the Government’s efforts at curbing illicit alcohol as it continues to lose approximately Kshs. 71 billion annually as established by the recent study by Euromonitor. How will this move make things better?” posed Mr Githua.
Since Excise Duty is a consumption tax, manufacturers are merely a collection agent for the final consumers of the product. ABAK argued that with the taxes already remitted in advance, this will negate the entire objective of levying excise tax as manufacturers will be incurring a cost that should be incurred by consumers.
If the proposal is enacted, manufacturers will be required to review the contracts that they have with their distribution networks, including outlets such as bars and restaurants, to require upfront payment on all orders to sustain compliance by alcoholic manufacturers. This will create a strain on the value chain as the immediate cash requirements will not sustain the value chain distribution networks.
According to the 2022 Economic Survey by the Kenya National Bureau of Statistics, the Government collected KSh44.7 billion from locally manufactured beer, wines, and spirits in 2021. An extrapolation of this amount by factoring inflation at 6.3% gives an estimated total amount of Kshs.47.5 billion from locally manufactured beer, wines, and spirits in 2022.
Consequently, the implementation of the new requirement to remit excise duty in advance will require local manufacturers to finance a total Kshs.130 million daily before they actualize a sale.
