AMBIGUITY

PWC cites ambiguity in inflation adjustment tax

Excise duty on a litre of bottle water rose to Sh6.03 per litre from Sh5.74.

In Summary
  • KRA did not indicate the exact date the new tax measure will take place 
  • The excise inflation adjustment did not affect petroleum products.
The bottled water./KRA
The bottled water./KRA

Prices of bottled water, sodas, motorcycles – boda boda, cigarettes and non-alcoholic drinks have gone up further following the move by the Kenya Revenue Authority to raise excise duty charged on the goods.

KRA, in a notice to manufacturers, importers, and Kenyans, said the changes were informed by the increment in average inflation rate for the financial year 2020-21 of 4.97 per cent.

“The specific rate of duty has been adjusted using the average inflation rate as required under Section 10 of the Excise Duty Act, 2015,” KRA commissioner-general Githii Mburu said in the notice.

However, tax consultancy firm PWC describes the notice and ambiguous since it is not clear on the effective date. 

Although the notice was published on November 2, 2021, it is dated 15, October 2021 and does not clearly define its effective date

Fruit and vegetable juices – including grapes, will now be charged excise duty of Sh12.17 per litre from the Sh11.59 per litre.

Bottled water or similarly packaged waters and other non-alcoholic beverages – not including fruit juices, will attract a duty of Sh6.03 per litre from Sh5.74.

In what may dampen this year’s festive season, prices of beer and spirituous beverages of below six per cent alcohol content are equally set to go higher.

This is with the proposal to increase excise duty charged on the product by over Sh5 from Sh116.06 to Sh121.85 per litre.

KRA has also increased the rate of duty on motorcycles – save for motorcycle ambulances and those locally assembled, will attract excise of 12,185 per unit from the current Sh11,606.23.

Wines as well as other alcoholic beverages obtained by fermentation of fruits will also cost more in the wake of the excise duty being increased to Sh208.2 per litre from Sh198.34.

Spirits lovers have equally not been spared the price hikes with the proposed increment of duty to Sh278.70 from Sh265.50.

Cigars, cheroots, and cigarillos containing tobacco or substitutes will attract a duty of Sh13,906 per kilo from Sh13,247 per kilogram.

Duty on electronic cigarettes is equally set to rise from Sh3,974.06 to Sh4,171.59 per kilogram same for cartridges for use in electronic cigarettes whose new duty is Sh2,781.43 per unit.

According to the legal notice, cigarettes with filters will now attract excise duty at the rate of Sh3,477.51 from Sh3,312.95 per mille while duty on those without filters will also rise to Sh2,502.74 per mille.

Duty on other manufactured tobacco and manufactured tobacco substitutes has also increased to Sh9,734 from Sh9,273.55 per kilogram.

Imported sugar confectionary will now attract duty at the rate of Sh36.74 per kilogram from Sh35 while white chocolate, chocolate in blocks, slabs and bars have had their excise increased to Sh220.31 per kilogram from Sh209.68 per kilogram.

Products containing nicotine or its substitutes that are intended for inhalation without combustion or oral application – excluding those approved by Health Cabinet Secretary, will attract a duty of Sh1,259.64 per kilo from the current Sh1,200.

Following the introduction of the Electronic Goods Management System (EGMS) last year, KRA recorded a Domestic Excise of Sh15.4 billion - a growth of 20.7 per cent, in the first quarter of the financial year.

The new duty rates are kicking in at a time the taxman is seeking to net more tax bands targeting Kenyans’ social media activities.

Already, traders reeling under a barrage of tax obligations have started feeling the heat of the new rates with the sudden surge in prices of soft drinks and associated products.

The National Assembly Committee on Delegated Legislation chaired by Tiaty MP William Kamket is expected to ratify the KRA legal notice to give it the full force of the law.

MPs in June shot down proposals to tax bread, maize flour, wheat flour, cassava flour, and motorcycles citing the tough economic times.

“The commodities are consumed by a majority of Kenyans who are already struggling with the negative current economic climate as a result of the Covid-19 pandemic,” the Gladys Wanga-led Finance committee said, a decision that was backed by members at the plenary.

Even so, finance consulting firm Pricewaterhouse Coopers (PwC) is warning of confusion that could be caused by the latest tax increment on those select products.

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“This is likely to create confusion as the effective date could be subject to varying interpretation, which is bound to present compliance challenges to businesses and disputes with the tax authority,'' PWC said. 

The inflationary adjustment was introduced to ensure that the duty does not lag as price levels increase due to inflation.

This was as a result of the Excise Duty Act, 2015 (the Excise Act), introducing specific excise duty rates for most products except cosmetics, food supplements and motor vehicles.

However, a notable exception from Legal Notice No. 217 is an excise inflation adjustment on petroleum products.

This follows a petition filed at the High Court in Nairobi seeking to block KRA from adjusting excise duty on petroleum products through a public notice issued on August 10, 2021.

The court issued conservatory orders on September 27, with respect to petroleum products, pending the hearing and determination of the matter.