Relief as court suspends new alcohol, water taxes

Consumers got a reprieve yesterday after the High Court suspended the imposition of Excise Duty on essential products by the Kenya Revenue Authority (KRA).

Lovers of beer and other alcoholic drinks, fruit juices and cigarette smokers can breathe a sigh of relief after the court protected them from the impact of the new law that was to come into effect from November 20.

A petitioner had moved to court seeking legal intervention in KRA’s move and “restore fidelity to the rule of law, sanity in the legislation regime with adherence to laid down procedure”.

Mwaura Kabata, a lawyer, wanted the court to grant declaratory orders that KRA’s move to impose Excise Duty on the affected goods was a violation of the Constitution and, therefore, null and void.

In his ruling, Justice James Makau directed that imposition of Exercise Duty on the products be suspended until the hearing and determination of the petition.

“In view of the fact that the effective date shall be on 20.12. 2021, this court directs that status quo be maintained as of today,” ruled Justice Makau.
Products affected by the notice include fruit and vegetable juices, bottled water, beer and ciders, powdered beer, wines and alcoholic spirits.

Public participation

Others are cigarettes, cigars and tobacco products, electronic cigarettes and cartridges used in electronic cigarettes, and other manufactured tobacco substitutes.

The new rates will also apply to imported motorcycles, except for motorcycle ambulances, imported sugar confectionery, and white chocolate.

Kabata had also asked the court through lawyer Brian Odongo, to grant declaratory orders that the tax collector erred for failing to table before the National Assembly the intended tax changes within the strict timelines set out.

“KRA blundered by failing to consult the stakeholders as required in law and also did the publication of the new tax without holding public participation,” said the petitioner.

Justice Makau further directed KRA to file and serve its responses within seven days from the date of the ruling.

“The petitioner to file and serve supplementary affidavit within one day from the date of service with KRA response limited to maximum 4 pages,” Makau ruled.

Kabata, in his plaint, says that on September 25, 2020, KRA Commissioner General Githii Mburu issued rates of excise duty on various commodities, factoring in an adjustment for inflation pursuant to Section 10 of the Excise Duty Act, 2020.

“The said adjustment was occasioned by the need to take into account the average inflation rate for the 2019/2020 financial year of 4.94 per cent. The adjustment was brought to effect vide Kenya Gazette Supplement No. 173 of October 1, 2020, under Legal Notice No. 194,” read the petition.

The petitioner argues that the Commissioner-General’s action through the impugned gazette notice is dated November 2, 2021, which invariably means the effective date is November 20, 2021.

“Section 35 of the Excise Duty Act, 2020, mandates that Excise Duty returns shall be filed on the 20th day of every month whether or not the Excise Duty thereof is payable.”

He noted that the authority has since increased the Excise Duty rate by an inflation factor of 4.97 per cent which is unfounded but nearly borrowed from the inflation rate for the previous year.

“This action was evidently occasioned by the need to merely comply with the orders of Justice Makau quashing the imposition of Excise Duty on petroleum products, but not based on empirical research and information and mandated by the Act,” argued Kabata.

He added: “The gold standard requires inflation to be marked up or down based on empirical research from the National Bureau of Statistics.”

According to the petitioner, consumers and manufacturers as well as business owners will suffer financially by the heightened tax pressures.

“The tax demand on goods shall invariably be transmitted to the end consumer as they are the taxpayer,” he stated.

Kabata said that should tax go higher, tax cheats will seek to exploit the gap in price by getting their hand into counterfeit products and fake excise stamps which will erode the quality of products hence endangering lives but also reducing the net realisable tax collection.

PriceWaterHouse Coopers (PwC) has already warned of possible confusion over the legal notice issued on November 2 by KRA on the adjustment of Excise Duty levied on various products.

The consulting firm warned that the notice “was published on November 2, 2021, but is dated October 15, 2021, and does not clearly define its effective date”.