Alcohol manufacturers are set to experience a slight relief in their production costs starting this coming financial year, 2025/26, following the decision by the government to slash the excise duty on Undenatured Extra Neutral Alcohol (ENA) from ABV-based to volume-based to Ksh500 per litre.  

This is, however, still way above their Ksh250 per litre proposal, which they argued was in a bid to filter out illicit alcohol and boost the country’s manufacturing.   

In the Finance Bill 2025/26, the National Treasury had proposed to slash the excise regime for spirits of undenatured extra neutral alcohol of alcoholic strength exceeding 90 per cent purchased by licensed manufacturers of spirituous beverages from the current  Ksh964 per litre to Ksh500 per litre.   

While presenting their views on the proposed clause in the finance bill before the National Assembly departmental Committee on Finance and National Planning, the East African Breweries Limited had argued that even though the rate has been revised downwards, the new Ksh500 tax still creates loopholes for illicit alcohol infiltration into the country.   

“We appreciate the government’s effort to change the excise regime on undenatured extra neutral alcohol from ABV-based to volume-based and reducing the tax rate from Ksh964/litre to Ksh500/litre. However, the taxes charged on Ethanol by both Tanzania and Uganda is very low, which will still encourage smuggling into Kenya,” EABL said.   

According to them, while Kenya’s rate is set to be at Sh500 per litre, both Tanzania and Uganda rates are at Ksh239.29 (Tsh5000) and Ksh88.64 (Ush2500) per litre, respectively. 

They also argue that the proposed excise rate for ENA is 5.6 times the Uganda rate, thus reducing cash flow and making local manufacturing in Kenya uncompetitive.   

“The excise rate reduction will reduce the incentive for unscrupulous individuals from smuggling Ethanol into Kenya, which has exacerbated the problem of illicit alcohol trade,” they argued.   

If their proposed bill gets adopted, they are optimistic that there will be increased government revenue collection from the reduction in illicit ethanol, which is used by counterfeiters, reduced public health impact from manufacturers of sub-standard spirits and Increased competitiveness.   

Recent data shows that Kenya loses Ksh120 billion annually in foregone taxes as a result of the infiltration of illicit alcohol that Kenyans consume, which accounts for 60 per cent of the total supply of alcohol drinks nationwide, implying that only 40 per cent of alcohol consumed in the country is licit     

This means that for every two drinks that one consumes, one definitely has to be illicit, which may also pose significant health threats as a result of absconding.     

A study by Euromonitor International, commissioned by the Alcoholic Beverages Association of Kenya (ABAK), established that the Ksh120 billion fiscal loss is mostly due to the artisanal brewing (traditional drinks such as Chang’aa) and illicit manufacturing of spirits.   

The report indicates that the associated fiscal losses have grown by 68 per cent since 2022, with a smuggling surge in ethanol from Uganda and Tanzania driven by the price differential between Kenya and its neighbours for all alcohol.   

“Cross-border smuggling from Uganda and Tanzania brings in harsh spirits, especially popular near border areas like the Nyanza region, before making their way into cities. With some border points being unguarded or loosely monitored, these porous entryways make it easy for illicit alcohol to flow into the country,” the report highlights.  

In urban areas, informal markets in slums have become hotspots for smuggled drinks, fuelling the spread of counterfeit alcohol and making enforcement even more challenging.   

Although illicit artisanal homebrew represents 67 per cent of the illicit alcohol market, most of the illicit alcohol value lies in smuggling, counterfeit and tax leakage, a situation that ABAK chairman Eric Githua attributes to high taxation on alcohol.