Kenya Revenue Authority (KRA) has found itself in the firing line for spreading excise tax bracket from traditionally excisable items such as alcohol and tobacco to other items in what amounts to overtaxation. Experts say that traditional excise tax was supposed to curb the abuse of harmful products such as tobacco and alcohol but now items such as airtime, cosmetics, chocolates manufacturing inputs are also subjected to excise tax.

Institute of Economic Affairs CEO Kwame Owino said the traditional goal for excise tax was to discourage certain behaviours but the taxman is instead banking on it to increase tax revenues and hit tax targets. “If Kenyans want to have a generalised sales tax, we should then call it that, but we should not give an impression that we want to reduce consumption of certain products,” he added. At the moment, the excise taxes have been expanded to air time, financial services, cosmetics.

“As a result we realise that the contribution of beer to excise tax has actually shrunk, meaning that if you increase taxes over time, you don’t end up with more tax revenue,” said Zack Munyi, head of public policy research at Kenya Breweries Ltd who spoke during a panel discussion organised by a local TV station.

 Illicit products

KRA’s excise tax revenues have grown from Sh160 billion to Sh238 billion in 2021 from 11 per cent of total tax to 13 per cent of total tax. Head of Finance at the British American Tobacco Philemon Kipkemoi said the increased excise taxes on cigarettes are instead having an effect of making Kenyans opt for illicit products as they can no longer afford genuine products.

“Over the last two years we have seen an increase in contraband cigarettes from 11 per cent to 22 per cent. The consistent increase in prices is pushing consumers out of the ability to afford,” he added.

Christine Kahema of Public Finance and Tax Committee at the Institute of Certified Public Accountants said KRA is reducing the pool from which it can collect taxes as manufacturers cannot grow and revinvest.

“The tax rates on some of these products is very high, even the stamp comes with its own cost, it is unfair to the compliant taxpayers,” she added. As much as excise duty stamp aids in traceability of the supply chain, Kahema stated, it makes the problem even worse as manufacturers choose to absorb the cost, meaning that they cannot expand operations.

According to KBL, Kenya taxes beer more than Uganda and Tanzania, meaning that locally made beer is not competitive hence manufacturers are losing out. “Overtaxation accelerates the process of getting people to consume illicit products,” said Munyi, adding that because of that, they are not able to purchase barley and sorghum from Kenyan farmers.

“We used to do 2.8 million hectolitres of beer, currently we are doing 1.9 million hectolitres. We are losing revenues, farmers are losing revenues and the government is losing revenues,” stated Munyi.

Revenue collection

However, head of excise tax at KRA Listrom Kinoti said traditionally, excise tax has been seen as sin tax, but globally we have seen excise move to become a significant contributor in revenue collection.

“We are likely to see more of this since exercise happens to be a very simple way of collecting tax,” he added.

Owino also argued that KRA goes to an extent of benchmarking excise tax on inflation and yet the government does not increase salaries when inflation rises.

“It appears like we are throwing everything at excise tax to increase tax revenues,” he said. According to Kipkemoi, the government has increased taxes on tobacco products by 35 per cent in the last three years which is not commensurate with changes in inflation.