UPGRADE

Boost for KRA as manufacturers fully adopt EGMS

Over 1,000 companies have complied from an initial 250

In Summary

•Phase II of the EGMS,which came into place on November 13 last year, covers bottled water, juices, and non-alcoholic drinks.

•It is being implemented by KRA, with support from Swiss Company–SICPA, in a move to seal revenue leaks and fight counterfeits.

The KRA headquarters at the Times Towers.
The KRA headquarters at the Times Towers.
Image: FILE

Manufacturers have reported full compliance with Phase II of the Excisable Goods Management System(EGMS), boosting KRA's efforts to curb tax evasion and increase revenue collection.

Phase II of the EGMS, which came into place last November covers bottled water, juices, and non-alcoholic drinks.

KRA had given licensed manufacturers, importers, distributors, and retailers up to end of February, 2020 to clear old stock and comply with the new system.

 

It is a continuation of the excise stamps introduced on alcoholic drinks and cigarettes in 2013, which helped increase excise tax on these products from Sh700 million to above Sh5.6 billion, in short term.

“All manufacturers of soft beverages and bottled water under the association have complied with having EGMS equipment installed,” KAM, led by chief executive Phyllis Wakiaga, said in an inquiry by the Star.

According to official data, over 1,000 companies have complied, up from 250 licensed companies when the implementation commenced.

Compliant companies include 748 registered manufacturers and 23 importers of bottled water, and 57 manufactures and 194 importers of soft drinksjuices, sodas and other non-alcoholic beverages.

So far, the system has borne positive outcome and for the first three months of implementation , revenue grew by an average 11 per cent, according to KRA Deputy Commissioner Policy and Tax Advisory, Domestic Taxes Department,Caxton Masudi.

We gave ourselves three months to deal with any challenges that would come up in the systems, and deal with all queries by our stakeholders as we implement, before enforcement,” Masudi told the Star in an interview.

Swiss Company–SICPA has been instrumental in helping KRA implement the system, which remains critical in weeding out illicit trade and the fight against counterfeits, which is denying the government the much needed revenues.

 

SICPA provides security inks for currencies and sensitive documents, including identity documents, passports, transport and lottery tickets.

According to the Counterfeiting Intelligence Bureau's International Anti-Counterfeiting Directory, the company provides more than 85 per cent of the world's currency inks.

It is also involved in the market for secure traceability of products subject to excise duties, such as alcohol and tobacco stamps, and regulated products, such as halal products.

The EGMS system has helped KRA identify more than 177 companies that were illegally producing alcohol.

“We shut down all of them. From December 2013 to June 2020, KRA has facilitated 811 arrests and prosecutions related to EGMS cases,” Masudi said.

A study conducted by the Anti-Counterfeit Authority(ACA) conducted between October 2019 and February 2020 indicates that illicit trade denied Kenya Sh103 billion in revenue in 2018. This was up from KSh101.23 billion in 2017.

Most revenues were lost in the food, beverage, and non-alcoholic drinks sector which accounted for 23.19 per cent of the total illicit trade, followed by textile and apparel at 20.09per cent.

KRA has been cracking down on a number of illegal products, among them soda's and alcoholic drinks mainly from Uganda and Tanzania which have been selling in border counties ( Kajiado, for those from Tanzania), and Busia, Bungoma and Trans-Nzoia for those that come from Uganda.

The taxman is counting on the EGMS to enhance tax compliance, address illicit trade and boost annual excise revenue collection by approximately Sh4billion, from a previuos Sh1.4 billion.

This is despite Covid-19 disruption on the economy, which saw the closure of bars and later controlled operating hours under the curfew regime, reducing consumption and uptake of products covered under the excise stamp system.

The tough economic times coupled with tax reliefs given by the government have affected revenue collections, with KRA missing its quarter one target ( July-September), by Sh50.2billion.

The National Government’s cumulative revenue collection including A-I-A for the period amounted to Sh378.7 billion (3.4 percent of GDP) against a target of Sh428.9 billion, the Quarterly Economic and Budgetary Review by the National Treasury indicate.

“The revenue was below target mainly due to underperformance in Pay As You Earn, Value Added Taxes (both domestic and imports), Excise duty, Import duty and the ministerial A-I-A,” Treasury notes.