LEVIES

Manufacturers decry new water, beverages taxes

KRA plans to raise an additional Sh3.6 billion from excise tax

In Summary

 

  • The Kenya Association of Manufacturers says implementation of the EGMS system will have a negative impact on industries
  • The Consumer Federation of Kenya has termed the move detrimental and that KRA is likely to miss out as companies could evade taxes
KAM chief executive Phyllis Wakiaga during the forum on budget policy statement 2016 in Nairobi on February25. Photo/Enos Teche.
KAM chief executive Phyllis Wakiaga during the forum on budget policy statement 2016 in Nairobi on February25. Photo/Enos Teche.

Manufacturers have fired back at Kenya Revenue Authority(KRA)'s plans to raid drinking water and other beverages, warning of its multiple effects including derailing the sectors' contribution to the Big Four Agenda.

The taxman last week announced the roll-out of Excisable Goods Management System (EGMS) which will see manufacturers from September 1, required to affix the new generation excise stamps on bottled water, juices, soda, energy drinks, non-alcoholic beverages, food supplements and cosmetics.

This is an effort to raise an additional Sh3.6 billion from excise tax.

“Kenya Revenue Authority(KRA) notifies the public of the Go Live of the Excisable Goods Management System on bottled water, juices, soda and other non-alcoholic beverages and cosmetics effective September 1, 2019,” KRA said in a public notice.

According to commissioner for domestic taxes Elizabeth Odundo,KRA will be engaging its members on the implementation of the new generation excise stamps.The countrywide exercise which kicked off on July 12 is expected to run upto August 2.

The Kenya Association of Manufacturers(KAM) has however said whilst the EGMS seeks to combat illicit trade and authenticate excisable goods, the implementation of the system will have a negative impact on industries.

The system, manufacturers say, will raise operating costs and capital expenditures thereby significantly increasing the cost of doing business, which ends up raising the cost of living for Kenyans.

The costs attached to EGMS range from Ksh0.50 to Ksh2.80 per unit, which KAM says are ''high for all manufacturers and untenable for small industries.''

"This will impact negatively on the competitiveness of industry. Further, 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 Ksh1.5 to Ksh2.8 per unit,"KAM chairman Sachen Gudka said.

''As a key pillar in the Big 4 Agenda for the country, the manufacturing sector needs to be in a position to sustainably produce goods and services, whilst creating productive jobs for many in the country. We remain committed to realizing our country’s economic development,'' Gudka added.

The association's Chief Executive Phyllis Wakiaga said the move creates an ''unpredictable business environment that is a major disincentive for investments.''

With KRA spirited to raise more revenues to supplement the 2019/20 financial years' Sh3.02 trillion budget, consumers are likely to be on the receiving end as manufacturers and traders have traditionally passed such costs to the end users.

Treasury CS Henry Rotich has given the taxman a target of Sh1.87 trillion in the current financial year ending June 30, 2020 with up to Sh242.2 billion expcted to come from excise tax.

The Consumer Federation of Kenya (Cofek) yesterday termed the move detrimental and that KRA is likely even to miss out on the targeted revenues as companies could divert to other modes of doing business.

“The more you tax people the more they tend to evade tax. People will also resort to other low quality products and water which will expose them to diseases,” Secretary-General Stephen Mutoro told The Star on phone.

He further temed the EGMS “Scandalous” based on previous incidences where the process has been marred by bribery claims and tax evasion.

KRA is desperate to meet its targets which it has been missing year-on-year.

The move on manufactured goods is expected to further add presuure on the sector which is battling high energy costs, cheap imports,unstable exchange rates and costly raw materials all which are making local manufacturers uncompetitive.


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