Nairobi — Stakeholders in the alcohol manufacturing industry have called on the government not to apply the inflation adjustment on excise duty which is expected to raise the cost of alcoholic products amid the high cost of living in the country.
The submissions are directed to the Kenya Revenue Authority (KRA) which is expected to adjust the tax rates on beer, wine, and cigarettes from October 1.
The Excise Duty Act 2015 proposes an adjustment in excise duty every year in consideration of the cost of living.
In line with this, KRA is expected to adjust the tax rates on the items using the average inflation rate for the financial year 2021/2022 of six decimal three per centum (6.3 per cent).
In their submissions, the stakeholders noted that the increased taxes would negatively affect their industry as they will lead to an increase in the cost of production which is then transferred to consumers.
The Bars, Hotels and Liquor Traders Association (BAHLITA) noted that the adjustment of the specific rates of excise duty threatens the survival of alcohol selling outlets which mainly comprise micro, small and medium enterprises.
BAHLITA also noted that excise tax inflation adjustment does not mean increasing tax rates.
"The government should consider decreasing the level of taxes given the negative impact they have and the high cost of living," said BAHLITA.
The Pubs, Entertainment and Restaurants Association of Kenya (PERAK) on its part noted that excise increases on excisable items such as beer and tobacco hardly yield higher collection for the government hence called on it to reconsider the increase.
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They also argued that the proposed tax increase is in contravention with principles of public finance as this continues to increase the level of unpredictability and places an undue burden on the public.
"If anything, traders are still required to pay income tax and County Government Licenses eating further into their trade margins," PERAK said.
Both BAHLITA and PERAK noted that the tax increase would have an impact on finished goods distribution and retail trade leading to a loss of Sh15.7billion in employment income loss and 35,364 lost jobs.
The Alcoholic Beverages Association of Kenya (ABAK) and sorghum farmers in their submissions highlighted that two major successive excise tax increases in less than three months would negatively impact consumer welfare, and increase illicit trade and cost of living.
This is because the inflation adjustment on excise duty comes barely three months after the Treasury increased the excise tax on beer and wines and spirits.
"Upward tax adjustments lead to lower demand for excisable goods originating from Kenya, thus less raw material use in production. Therefore, tax increases often lead to unintended, far-reaching losses to farmers who supply raw materials," the farmers said.
The farmers noted that the impact of the two major successive excise taxes would lead to a loss of Sh588million in farmers income and over 15,000 farmers will be affected by reduced uptake of sorghum and barley grain for production.
