Soda, bottled water to cost more in KRA’s Sh3.6bn tax

KRA head office at Times Tower in Nairobi. FILE PHOTO | NMG 

By EDWIN OKOTH
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Summary

• KRA has set a target to raise Sh3.6 billion more revenue from the new tax system, which the Kenya Association of Manufacturers (KAM), however, says its members will pass on to consumers.
• The taxman has made it mandatory for all manufacturers to install the Excisable Goods Management System (EGMS), which they say will cost up to Sh2.80 per item of production, adding up to billions of shillings across industries.

Bottled water, soda, processed juices and cosmetics are set to cost more beginning September 1 when the Kenya Revenue Authority (KRA) implements a new tax system on a long list of consumable goods.

KRA has set a target to raise Sh3.6 billion more revenue from the new tax system, which the Kenya Association of Manufacturers (KAM), however, says its members will pass on to consumers.

The taxman has made it mandatory for all manufacturers to install the Excisable Goods Management System (EGMS), which they say will cost up to Sh2.80 per item of production, adding up to billions of shillings across industries.

"We had proposed that the costs (including the cost of the stamps) be recovered from excise tax collections. If manufacturers cannot manage to absorb these costs, it definitely means that they will have to be passed down to consumers.

"It will become prohibitively expensive for the common man to afford basic goods added with the high inflationary cost of living in a very price sensitive economy," said KAM chief executive Phyllis Wakiaga in an interview Thursday.

KRA says the new excise duty stamps are assisting in tracking of excisable products, besides sealing tax evasion loopholes.

Under pressure

The revenue agency, which has a new commissioner-general, is under pressure to collect Sh1.87 trillion in taxes in the current financial year, up from the Sh1.65 trillion it was expected to raise in the just ended financial year.

The manufacturers, however, say higher prices on the beverages and cosmetics will increase the cost of living and eventually hurt consumption of the commodities.

The manufacturers say they are incurring between Sh0.50 to Sh2.80 per unit to implement the system, which requires them to affix the new generation excise stamps on each unit they produce.

They say the additional cost will reduce their competitiveness, with the small industries expected to be hardest hit.

KRA has been gearing to implement the new system for years, but took a retreat last year after manufacturers went to court to oppose the move.

KAM chairman Sachen Gudka says the plan by the KRA will also increase uncertainty in the manufacturing sector and discourage new investments since excise tax can be adjusted from time to time.

"Manufacturers do not have any control on possible increment on the excise stamp duty in future, as experienced by some sectors such as tobacco manufacturers, whose duty was increased from Sh1.5 to Sh2.8 per unit. This creates an unpredictable business environment that is a major disincentive for investments," Mr Gudka said in a statement.

New rollout data

KRA was forced to shelve the plan last year to consult with manufacturers, but the same complaints have persisted barely a month before the new rollout date.

The taxman collected Sh210 billion in excise taxes last year, up from Sh167 billion in the previous year.

Institute of Economic Affairs (IEA Kenya) chief executive Kwame Owino criticised the new system, accusing KRA of rushing to set its starting date even before Parliament has passed the Bill to operationalise it.

"The green light should come from Parliament because they are the tax setting body. You know this scheme was not properly interrogated as much as its contract was controversially awarded.

"The argument that it helps in sealing the loopholes is not evidenced and it remains a scheme that only adds to the production costs, which are then passed to consumers," Mr Owino said.

KRA, which has consistently missed the ever-rising revenue collection targets, awarded the stamp fixing contract to Swedish multinational SICPA claiming it would be useful in adding at least Sh3.6 billion in revenues annually if water and other non-alcoholic drinks are roped into the scheme.

Earlier in the month KRA, which is expected to raise Sh242.2 billion in excise taxes in the 2019/2020 year, notified manufacturers of the intention to roll out the new excise tax system.

"KRA notifies the public of the go-live of the excisable management system on bottled water, juices, soda and other non-alcoholic beverages and cosmetics effective September 1, 2019 as stipulated by Section 28 of the Excise Act, 2015 and the Legal notice 53 of the March 2017," said KRA commissioner for domestic taxes Elizabeth Odundo Meyo in a notice.