How the proposed Excise Duty Bill 2015 differs from the Customs and Excise Act

The classification of products will now move from the tariff code-based classification to mere descriptions. PHOTO | FILE 

By JURGEN MURUNGI

In Summary

• One of the major differences with the Act is the introduction of the indexation adjustment, which is an adjustment of excise duty rate by a proportion of the inflation rate for the preceding one year.

In his June budget speech, Kenya’s Cabinet Secretary of the National Treasury stated that, as part of the tax reform agenda, he will table the Excise Duty Bill 2015.

Among the objectives stated by the CS is that the Bill will simplify and streamline the excise duty tax system and broaden the tax base. This is expected to increase excise duty revenues.

Generally, the Excise Duty Bill is an improvement on the current Customs and Excise Act. There are certain similarities that have been carried forward, but we will focus on the notable differences between the current Act and the Bill.

One of the major differences with the Act is the introduction of the indexation adjustment, which is an adjustment of excise duty rate by a proportion of the inflation rate for the preceding one year. This adjustment will cushion the government against inflation as the Bill provides for adjustments to the rates of excise duty by the commissioner to cater for inflation on an annual basis.

The Bill also allows the CS to vary the rates of excise duty but limits the variation allowed to not more that 25 per cent. This limitation in variation will help provide certainty to the players who make excisable supplies.

The second major change is the move from hybrid tax structures to a predominantly specific tax structure. A specific tax structure levies excise duty as a quantum of specified units of measurements such as kilogrammes, litres or such other readily recognisable units. Under the old regime, the hybrid structures were used with specific structure being applicable mainly to motor vehicles.

The classification of products will now move from the tariff code-based classification to mere descriptions. This means that the descriptions of the products no longer resemble those contained in the East African Community Common External Tariff (EAC-CET).

There are likely to be challenges arising from this classification as certain product descriptions overlap. For instance, the classification of beer and spirits does not clearly provide a category under which beer with alcoholic strength of more than 10 per cent should be classified. This is likely to pose a challenge and be a source of dispute between revenue authorities and taxpayers.

Other notable changes include the Bill empowering the commissioner to remit excise duty on beer made from local agricultural products. This is seen as a move aimed at promoting the use of local raw materials in beer production.

The Bill proposes to use the Tax Procedures Act for all administrative matters as well as the consolidation of penalties for most offences to double the amount of tax due. In essence, this makes it more predictable for taxpayers to establish the penalties payable and enables them to handle matters of voluntary disclosure more efficiently.

The CS promised to move to a specific tax regime, simplify the excise regime, remove excise duty on non-harmful products that do not have externalities as well as increase revenue collection. It is evident that the Bill has achieved the shift to a specific regime.

What remains in doubt is whether the Bill has made the regime simpler, removed excise duty on non-harmful products or whether it will increase excise duty revenue collection.

Jurgen Murungi is manager, tax services at PwC Kenya