The taxman is seeking tighter controls over operations of
distributors of alcoholic beverages in the wake of concerns about rising
sale of illicit liquor, denying the country billions of shillings in
potential tax revenue.
The Kenya Revenue Authority says
it has finalised draft amendments to the Alcoholic Drinks Control Act
which will give it some powers in the process of licensing distributors –
a function currently in the hands of 47 regional governments.
“Inter-government
agencies consultations have been concluded on draft miscellaneous
amendment on Control of Alcohol. The law is due for presentation to the
Cabinet and the National Assembly,” Commissioner of Domestic Taxes
Benson Korongo told the Sunday Nation.
Insiders say
cartels have infiltrated the high-end alcohol market with counterfeit
liquor that comes disguised as foreign brands.
The cabals, which largely target the spirits segment, have also
penetrated some of licenced liquor manufacturing factories where they
process substandard drinks and distribute them using own fake excise
stamps, undercutting genuine distillers.
Production of
spirits outside Electronic Goods Management System (EGMS), even at the
KRA-licensed plants, has been on the rise since mid-last year, according
to a section of distillers.
Mr
Korongo said one of the licensed companies was “undergoing prosecution
for offences relating to illicit spirit”, without disclosing its
identity.
“In order to eliminate the use of licensed
facilities in the production of illicit alcohol, KRA has put in place a
stringent control and monitoring system,” he said.
KRA
in September 2016 introduced new generation excise stamps for wines,
spirits, tobacco, and beer whose features allows distributors to verify
genuine products using smartphones through an app dubbed “Soma Label”.
The
taxman has, however, been accused of concentrating on big players,
while smaller firms allegedly continue to engage in undeclared
production of spirits at their licensed plants, thus evading the hefty
on alcohol industry.
One of the leading spirits
distillers on January 16 this year provided a list of 18 firms, 14 of
which have been cleared by KRA in the latest notice, alleged to be
selling 205 and 250 millilitres of some of their gin, vodka and brandy
products to distributors at between Sh70 and Sh75.
We
could not, however, disclose the companies since we could not
independently establish the distributor prices for the brands alleged to
be sold at undercut prices.
The firm’s official, who
did not want to go public due to sensitivity of the matter and referred
us to Alcoholic Beverages Association of Kenya (ABAK), said it was
impossible to sell at those prices.
He cited the Sh200
excise duty per litre, the standard 16 per cent Value Added Tax (VAT),
Sh2.80 stamp duty and other overheads such as packaging, branding and
labour.
“They (KRA) go to a few big companies like
ourselves. They don’t check other smaller firms and that’s why these
(illicit) brands are coming back,” the official said.
“The
trend has been downwards since September last year. Our sales, for
example, have gone down by about 45 per cent, and we only have about 200
staff right now out of about 500 employees that we usually have –
that’s both permanent and casuals. We have been forced to send some
away.”
ABAK – which represents Kenya Breweries Ltd, UDV
Kenya Ltd, Africa Spirits Ltd, Wine of the World (WOW) Beverages,
London Distillers Kenya, Kenya Wines Agencies, Moonwalk Investments and
Distell Winemasters – maintained that half of alcohol consumed in the
country is illicit or informally processed.
The lobby
insisted the KRA may be losing about Sh30 billion annually to illicit
trade in alcohol and counterfeited excise stamps.
The
taxman last week Monday reported excise taxes fell by nine per cent, or
Sh7.35 billion, in six months through December 2017 compared to Sh81.644
billion in the same period a year earlier, partly blamed on illicit
spirits and fake stamps.
That marked the first fall in
that period since 2011 when collections fell to Sh37.01 billion from
Sh39.52 billion the year before, an analysis of the data kept by the
Central Bank of Kenya shows.
“Industry analysts term
the performance as unusual given what would otherwise have been a strong
season given election-related consumption,” commissioner-general John
Njiraini, whose second and final three-year term expires early next
month, said.
Alcoholic drinks and cigarettes account
for about 90 per cent of income from excise duty, which is also charged
on soft drinks, water, cosmetics, food supplements and polythene bags
(whose production is only allowed for industrial use since August 2017).
President
Uhuru Kenyatta in July 2015 ordered a countrywide crackdown on illicit
production of alcohol resulting in reduction of licensed manufacturers
of spirits to 21 from 177.
This was after the
Inter-Agency Task Force on Control of Potable Spirits and Combat of
Illicit Brews, formed by the then Interior secretary, the late Interior
secretary Joseph Nkaissery, found 114 licensed firms to be unfit to
process spirits for human consumption.
The
KRA last week cleared 28 firms to make spirits this year. The revenue
agency, ABAK and the taskforce on illicit alcohol, last week Wednesday
rolled out a two-week multimillion-shilling sensitisation campaign on
how to verify genuine alcoholic drinks using the “Soma Label” app.
Alcohol
manufacturers, distributors, retailers and importers as well as the
police in 35 hotspot towns are being sensitised on how to verify genuine
alcoholic products using smartphones.
Most of
low-value spirits from Uganda, some packaged in banned sachets, market
insiders said, are widespread in western towns such as Kisumu and
Bungoma, and downtown Nairobi streets.
“To ensure a
quick response time to reports of illicit products in the market, KRA
has devolved its Market Surveillance function to Kisumu and Mombasa,” Mr
Korongo said.
“Further devolution of this function will be undertaken in the current financial year.”
Illicit
production of spirits is also being helped through smuggling of ethanol
– a key raw material – through the Namanga border and Coastal line
largely from China and India.
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