IMPACT

Why high taxes on alcohol could hit Kenya hard

Kenyans love their booze.

In Summary

•In 2015, President Uhuru Kenyatta announced a war against these illicit drinks mostly sold in informal settlements, dungeons and deep in the villages.

•However seven years down the line, Kenyans are still losing their lives to these drinks.

Image: BBC

Almost every year, there are dozens of Kenyans who are reported to either have died or hospitalized after consuming illicit brews.

There have also been cases of people going blind after partaking in these lethal drinks made in Kenya’s underground world of self-proclaimed “Master distillers”.

Some of the common names you will here include kumi kumi or changa'a, kangara, busaa, sorghum baridi, el nino, one touch and jet fuel, among others.

It is estimated that at least 14,000 young and old people die each year from consuming illegally brewed alcohol, mostly made with high methanol levels, with additives such as fertilizer, battery acid and other toxics.

Not only the locally made brews make the list of illicit alcohol but some craftsmen have even put the drinks in local pubs, with funny brands that don’t meet the set standards being sold in measurements of as low as Sh10.

“There are a lot of fake killer drinks that are not necessarily local brews. There are drinks that make you high with a single sip you wonder what the formula is,” poses Roy Nyagah, a city entrepreneur who operates a bar in one of Nairobi’s busy estates.

In 2015, President Uhuru Kenyatta announced a war against these illicit drinks mostly sold in informal settlements, dungeons and deep in the villages.

He went ahead to task Member of Parliament to coordinate with local administrations within their areas to curb the trade of illicit alcohol.

A country-wide sweep was mounted with arrests being made in different regions.

However seven years down the line, Kenyans are still losing their lives to these drinks.

One of the most recent incidences was in March this year where five people were reported dead with ten others hospitalised after drinking an illicit brew at Canaan village in Kamukuywa ward, Kimilili constituency, Bungoma county.

This had come a week after one person had died and three others admitted to the hospital in Uasin Gishu county after consuming a lethal illicit brew.

But why illicit?

Kenyans love their booze and if they cannot afford the fine wines and whiskeys, a good number would settle for anything that makes them high.

The high uptake of cheap liquor is however blamed on the lack of spending power in a country of high unemployment, where over 60 per cent of the urban population is living in slums.

Continued increases in taxes have made alcohol expensive to the majority of the country, a move that has encouraged the continued uptake of illicit brews.

Unscrupulous dealers are also sneaking in cheap liquor to meet the demand.

For instance in 2015, the country’s renowned brand “Tusker” was retailing at Sh130 per bottle.

Now it is going for an average of Sh180 with high-end places selling the beer at between Sh250 and Sh500.

In Kampala, Uganda, a beer averages Ush4359 (Sh139), while it goes for as low as Sh100 and Sh60 in Tanzania and Ethiopia, respectively.

This has made it attractive for Kenyan traders, mostly those near the borders, dealing in illicit trade.

Keg beer, which was introduced in the market targeting the lower end of the consumer market, has also seen its prices increase over years.

In 2013, a 300-millilitre tumbler was selling at as low as Sh30 with a half-litre mug going for Sh30.

These prices are now up by almost 30 per cent, increases occasioned by taxes.

More taxes 

In the next financial year 2022-23 starting July 1, National Treasury had proposed an increase in the excise tax of beer and wines and spirits.

Treasury CS Ukur Yatani wanted excise on beer increased to Sh134 per litre, Sh229 for wine and Sh335.30 for spirits, as part of strategies to generate an additional Sh50.4 billion in revenue.

Last week, the Finance and Planning Committee of the National Assembly however rejected the proposal and upheld requests by the industry to maintain the current taxes.

“Increase in excise duty on beer may increase uptake of illicit brew,” the committee chaired by Homa Bay Woman Representative Gladys Wanga wrote in its report.

It further noted that the excise rate had been revised in the Finance Act 2021, and should therefore be given some time before review.

In a new twist of events, this week, Kikuyu MP Kimani Ichung’wah sought to increase excise duty on beer, wine and spirits by between 20.2 percent and 25.6 percent, opposing the recommendation by the Finance Committee.

On Thursday night, MPs passed the Finance Bill 2022 with an increase in excise duty on wines, which will attract duty at the rate of Sh229 per litre from the current Sh208.20.

Spirits with an alcoholic per centage of more than 6% will attract excise duty at Sh335.30 per litre, up from Sh278.70.

Beer products whose alcohol content exceeds six per cent will attract excise duty at the rate of Sh134 per litre, up from Sh121.85, meaning retail prices are set to increase.

Caution

Bars, hotel and entertainment industry players have protested the increases saying it will kill the sector, which has already taken a huge blow from the impact of the Covid-19 pandemic.

According to the Bar Hotels Liquor Traders Association (BAHLITA), which represents the industry, the sector is yet to come to terms with Covid-related losses where the number of bar outlets has reduced from 54,000 to 32,000 countrywide.

At least 110,000 jobs in the entertainment and hospitality sector have been lost in the process.

This represents Sh19.8 billion loss annually in household income for the hospitality industry.

The sector is also experiencing a high cost of doing business due to increased fuel prices and the increased cost of food due to external factors and high inflation, it says.

Further, high prices of alcohol will encourage the growth of illicit trade in the form of contraband and cheap raw spirit entry from neighboring countries, BAHLITA secretary-general Boniface Gachoka notes.

The association’s sentiments are similar to the Kenya Association of Manufacturers (KAM) which has since warned that an increase in taxes will increase the consumption of illicit alcohol, amid reduced production which will deny the government revenue.

Reduced beer production also means a cut in barley production, which will hit farmers hard.

“Illicit trade is expected to increase from 44 per cent to 54 per cent with the proposed increase of excise duty rates. This will increase the cost of enforcement for the government and expose consumers to lethal brews thus increasing health costs to the government,” KAM chief executive Phyllis Wakiaga notes.

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