Kenyan manufacturers worry over proposed ‘sin’ excise duty

Cigarette manufacturer British American Tobacco’s plant at Industrial Area, Nairobi. BAT data shows a significant increase in the volume of illicit cigarettes entering Kenya from Uganda . FILE PHOTO | NMG 

In Summary

• In a joint statement on Thursday, cigarette and alcoholic beverage manufacturers termed the move by Parliament’s Departmental Committee on Finance and National Planning as “strange and unusual.”
• Kenya hopes the increased sin tax will net more revenue to help bring down the budget deficit that stands at 5.7 per cent this financial year.
• The increase comes amid concerns of a rise in the illicit trade in cigarettes.

By JAMES ANYANZWA
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Kenyan manufacturers are not sitting easy after they were slapped with 21 per cent increase in excise duty.

This is after parliament increased the excise tax on cigarettes, wines and spirits by 5.15 percentage points from the original proposal of 15 per cent in the Finance Bill 2019. The Bill is now awaiting presidential assent.

Manufacturers now say they will pass on the additional costs to consumers, a move they reckon could push millions of consumers to resort into consuming illicit products, which could pose significant social costs to the country.

In a joint statement on Thursday, cigarette and alcoholic beverage manufacturers termed the move by Parliament’s Departmental Committee on Finance and National Planning as “strange and unusual.”

“The further proposed tax increase ultimately widens the existing disparity in excise and prices across the East Africa Community countries, increasing profit margins for illicit traders and in turn increasing the supply and availability of illicit products,” said the statement.

The statement was signed by Alcoholic Beverages Association of Kenya, Mastermind Tobacco and British American Tobacco.

Kenya hopes the increased sin tax will net more revenue to help bring down the budget deficit that stands at 5.7 per cent this financial year.

The increase comes amid concerns of a rise in the illicit trade in cigarettes.

BAT data shows a significant increase in the volume of illicit cigarettes entering Kenya from Uganda and which accounts for approximately 70 per cent of all cigarettes that have not been paid tax for in Kenya. The illicit trade is costing the country $2.3 million in revenue annually.

If the president assents to the Bill, the excise tax on cigarettes in Kenya will be $30 per mille for cigarettes with filter and $21.6 per mille for the filter-less.

Data by audit firm PwC shows that Uganda has imposed a $14.8 excise tax per 1,000 sticks of locally manufactured cigarettes and $20.2 for imported cigarettes.

Tanzania levies $3.4 per mille excise tax on cigarettes with filter containing more than 75 per cent of domestic tobacco and $5.4 per mille for cigarettes without filter.

According to manufacturers, the move represents a significant shift in the government’s current policy on excisable goods and puts at risk the livelihoods of those across the value chain of manufacturers, employees, retailers and farmers.