RESULTS

EABL's half-year profits grow 9 per cent despite tough tax regime

High tax forces manufacturers to pass on the additional costs to consumers

In Summary

• Kenya's sin tax rate on bottled beer is 420 per cent higher than that of Tanzania and about 320 per cent higher than the rate in Uganda.

• EABL reported an Sh7.2 billion profit after tax-driven largely by the sale of senator keg which grew 21 per cent

A worker checks beer bottles on a conveyor belt at the East African Breweries Ruaraka factory.
A worker checks beer bottles on a conveyor belt at the East African Breweries Ruaraka factory.
Image: FILE

The government's persistent imposition of sin tax on bottled beer is killing sales as the price is putting them beyond consumers' reach.

According to EABL's half-year results, the sale of bottled beer declined by 100 basis points between June-December 2019.

Despite the dip in bottled beer sales, EABL reported a Sh7.2 billion profit after tax, driven by the sale of Senator keg which grew 21 per cent over the review period.

Mainstream spirits sales grew 11 per cent during the review period.

"The tax regime has been very aggressive growing 100 per cent over the past 10 years," EABL managing director Jane Karuku said.

She added that the government's sin tax rate on bottled beer is 420 per cent higher compared to Tanzania and about 320 per cent higher than the rate in Uganda.

Karuku said that this is not only bad for business but would negatively impact government revenue in the form of tax, making it a lose-lose situation.

"The government will end up losing revenue on bottled beer if the tax continues to grow at the current rate," she said.

In September, Parliament increased the excise tax on cigarettes, wines, and spirits by 5.15 per cent from the original proposal of 15 per cent in the Finance Bill 2019.

This has, in turn, forced manufacturers to pass on the additional costs to consumers, a move that is pushing millions of consumers away from bottled beer.

"Consumers don't have enough money to adjust to a price increase of Sh10 every year," Karuku said.

 

She added that although the sin tax was unlikely to be reduced, holding it stable at the current rate for a longer tenure would boost the firm and raise tax collection.

"We've got some work to do to get the excise rhythm to maximise profits," EABL Group managing director Andrew Cowan said.