BAT, anti-tobacco lobby oppose new cigarette tax

Money Markets

Connie Anyika, BAT Kenya head of government affairs: ‘‘We believe the proposed structure will reduce transparency.’’ PHOTO | COURTESY 

By JOHN GACHIRI, jgachiri@ke.nationmedia.com

In Summary

• BAT Kenya says the new proposals make tax computation difficult, less transparent and will end up reducing revenues for the Treasury.

Kenya’s largest cigarette manufacturer and an anti-tobacco lobby have closed ranks to oppose new excise tax rates they say will only reduce government revenues.

The parties, who are normally on opposing sides, say Parliament’s amendment of the Excise Duty Bill, 2015, has in effect made it difficult to tax cigarettes.

British American Tobacco (BAT) Kenya says the new proposals make tax computation difficult, less transparent and will end up reducing revenues for the Treasury.

The International Institute for Legislative Affairs (ILA) chief executive Vincent Kimosop, on the other hand, says: “The amendments completely reverse gains made in using fiscal policy to advance public health objectives. It will also affect Kenya’s standing in the global community where we have been respected as a champion in tobacco control.”

Parliament has recommended that excise duty be charged depending on the quality of cigarettes as opposed to a single rate for all products proposed earlier.

The amendments introduce an excise tax of between Sh900 and Sh2,800 per 1,000 cigarettes, depending on quality, that favours cheaper cigarettes.

The Excise Duty Bill, 2015 had proposed that tobacco products be charged a flat duty of Sh2,500 per 1,000 sticks.

“Parliament has preferred a complicated system which over time will reduce revenues. They have passed amendments to the Bill to introduce a four-tier structure based on the ex-factory selling price which is a step backwards for excise revenue sustainability,” said Connie Anyika, BAT Kenya head of government affairs.

“We believe the proposed structure will reduce transparency and make it less predictable for government revenues.” Anti-smoking lobby groups say the amendments will make cigarettes more affordable in addition to reducing tax collection.

READ: KRA intensifies war with manufacturers over excise tax

ILA, a Christian lobby, had previously argued that having different tiers for taxing tobacco products would result in smokers going for cheaper brands which would defeat the drive to reduce smoking. The MP who mooted the amendment said he wanted poor Kenyans to afford cigarettes.

An ILA proposal to Parliament, supporting a flat excise tax of Sh2,500 per 1,000 sticks, calls for an even higher rate to match standards set by the World Health Organisation (WHO).

“The Treasury should shift cigarette taxation towards internationally accepted norms. Such practices include increasing tax rates for tobacco products to be at least 70 per cent of retail prices,” says the ILA’s proposal.

Should the Bill, which is through the final reading, be signed into law it will go against the spirit of tax simplicity which Treasury Cabinet secretary Henry Rotich mentioned when he read the budget in early June.

The Treasury expects that simplifying the excise duty Bill will result in collecting Sh25 billion in the 2015-2016 fiscal year. Mastermind Tobacco, BAT’s rival, was not available for comment on the matter.