MONKEY BUSINESS

Fake tax stamps robbing KRA , affecting compliant traders

Mombasa, Nairobi, Naivasha, Kisumu most affected

In Summary

•Manufacturers have warned the trend is denying KRA revenue.

•They say compliant businesses are also denied their fare share of the market by cheap products from tax evaders and non-compliant industries.

KRA officials display some bottled water confiscated during a past crack down on water companies which evade tax in Mombasa/FILE
KRA officials display some bottled water confiscated during a past crack down on water companies which evade tax in Mombasa/FILE

Fake excise duty stamps have flooded the market, manufacturers have warned, posing a threat to Kenya Revenue Authority's (KRA) revenue streams.

They said traders compliant with the Excise Goods Management System (EGMS) stamp rule are losing business to rogue players with Mombasa, Nairobi, Naivasha, and Kisumu most affected.

 
 

Hard hit are bottled water manufacturers and dealers, with products without excise stamps selling widely in the market, despote the EGMS rule on bottled water, juices, and non-alcoholic drinks coming into force on November 13.

Yesterday, KRA warned traders against re-filling and packaging water without both the excise license and stamps, with duty being remitted to the taxman.

"It is an offence to manufacturer excisable goods without an excise license and it is also an offence to be found in possession of, purchase or offer for sale excisable goods manufactured by unlicensed persons," KRA commissioner for domestic taxes Elizabeth Meyo said in a public notice.

KRA had given licensed manufacturers, importers, distributors, and retailers up to February 29, 2020, to clear old stock and comply with the new system, which it banked on to boost revenue collection.

The Coast Bottled Water Manufacturers Association (COBWMAS) yesterday said that apart from fake stamps, crafty traders are also swapping stamps and asked KRA to act swiftly. 

Under-declared or swapped stamps involves the affixing of, for instance, a 300ml stamp on a five-litre bottle, where KRA loses 4.7 litres declaration to the unscrupulous dealers.

Some dealers are also destroying the stamps to beat scanning.

“We blame law enforcers. They are doing nothing to save the situation. The industry is being killed by those supposed to create a level playing ground for investors,” COBWMAS chairman Michael Dianga told the Star.

 

The  Water Bottlers Association of Kenya (WBAK) wants KRA to increase its market surveillance, instead of focusing on compliant producers.

“They know where the fake stamps are, we have told them and they know, that is where they should go,” WBAK chairman Henry Kabogo said, calling for increased public awareness campaigns to enable the public to identify  non-compliant products.

The Kenya Association of Manufacturers (KAM) said despite engagements with the taxman, the use of dark-coloured ink to print digital stamps on dark-coloured caps remains a challenge since the stamps are not visible.

"This results in huge market returns as the consumer cannot see the stamps. We continue to propose that the service provider provides a range of digital stamps ink colours to cater for both dark and bright coloured caps," KAM said in a statement.

Unless the stamp tax matter is tackled,  KRA stands to lose up to Sh4 billion in excise tax, at a time when the authority is struggling to meet its revenue targets as the economy remains subdued due to the effects of Covid-19.

KRA successfully implemented EGMS on alcoholic drinks and cigarettes in 2013, which helped increase excise tax from Sh700 million to Sh5.6 billion.

EGMS which is meant to enhance compliance, address illicit trade, and boost revenue collection, has the potential to help the taxman collect in excess of Sh9.6 billion.

KRA missed its target in the last financial year, by Sh350 billion, as the government netted Sh1.43 trillion in taxes.

The National Treasury had given the taxman a target of Sh1.8 trillion.

In the current financial year, Treasury has projected domestic revenue at Sh1.6 trillion, meaning, it will have to borrow to meet its Sh2.79 trillion budget plan for 2020/21.