Nairobi — London Distillers Kenya Limited Chairman Mohan Galot is supporting concerns raised by the Kenya Breweries over the latest tax policies, which he said could collapse the sector.
Galot said the requirement to pay excise duty upfront and the increased taxation on spirits are making it impossible to continue manufacturing and serving the market.
"The requirement to pay taxes in advance, has put huge strain on the business working capital and its ability to sustain the business operations," Galot said.
"This has led to decline in the capacity utilisation as a result of lack of adequate raw materials and ability to consolidate all the factors of production," he added.
The chairman said the future of the alcohol and spirits sector is bleak and is bound to collapse if this policy requirement is not reviewed.
He said the situation has been exasperated by the fact that molasses in the country is illegally exported to neighboring countries, distilled, packaged, and comes back through informal routes of flooding.
Galot said this has made it difficult to compete in the market.
Further, he noted that these illegal products have steadily been increasing and now stand at approximately 60 percent in the market
"As the Chairman of London Distillers (K) Ltd, I wish to congratulate the Kenya Revenue Authority management for the concerted effort and commitment to address this issue and the market surveillance team are always on the ground to break the cartels involved," he said.
As a company, Galot said they have, through formal communication, raised the matter with the concerned ministry to review its policy on the export of molasses, which has created a massive shortage in the country for the last six months.
In a recent publication in local dailies, it was reported that the prices of molasses have risen by up to 10 times as a result of illegal exports, creating an undue shortage in the local market.
Galot said the government had intervened and suspended the export of molasses in February, which, in his view, was well intended and would have significantly stabilized the prices of the commodity in the country.
However, the ban, due to unknown reasons save for the intense lobbying by the exporters, was lifted after one month.
"A ton of molasses which was selling at approximately Kshs. 5000 in July last year now sells for approximately 50,000," Galot said.
"Our prayers to concerned authorities is to totally ban the exportation to avoid further decline of the spirits sector which may eventually collapse if no immediate action is taken."
Galot said London Distillers, which has been operational for the last 37 years, among other distillers, have been forced to operate at extremely low capacity due to a lack of mollasses.
He said this has affected a number of distributors and stockists who sell their brands.
"As a company we believe that this issue can be resolved promptly and eventually deliver the growth and investment plans we had set for ourselves," he said.
Galot noted that there is a general rapid decline in volumes and revenues in spirits sales, with Kenya Revenue noting the delivery of spirits volume decline by 20.7 percent in the quarter ended September 2023.
London Distillers Managing Director Avin Galot mentioned that he too is deeply concerned and worried about the dire consequences the sector now faces due to the policies.
Alvin said the future of thousands of investors and employees in the value chain is bleak.
"The excise duty on spirits with strength exceeding 6 per cent shot from 278.70 per litre to 356.30 per litre in 2022 forcing consumers to switch to illicit and counterfeit products and that has definately been the reason for the sector downward trend on volumes s and value performance," Alvin said.
He said the unaffordability of spirits has been hit hard, not just by the taxation policies but also by the increase in prices of raw materials, energy, and labor costs.
"The requirement that manufacturers make excise duty payment within 24 hours has crushed the net working capital structure and capacity of the sector and is not sustainable," he said.
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ABAK Vice Chairman P. S. Mann also voiced his concerns on the matter, adding that he fully appreciates the commitment and surveillance efforts the Kenya Revenue Authority has been making to streamline the sector.
He, however, believes that if the government is keen to make more revenue in this sector, then it has to review, on a priority basis, its approach to the taxation requirements of the sector.
"How can spirits manufacturer pay Excise duty within 24 hours even before the goods leave the warehouse, where would a company get money to sustain this operation?" Mann posed
He said that there was an objective to sort out certain gaps in revenue collection, but the approach cannot be the solution as many companies will soon collapse, many Kenyans will lose their jobs, and the government will also lose the much-needed taxes to improve the lives of the citizens.
