Beer, spirits taxes worry EABL despite positive 2022 outlook

Reports 124% jump in profit for the year ended June, to Sh15.6 billion.

In Summary

•Retail prices of beer and spirits have increased.

•The high prices in Kenya are blamed for fueling growth in illicit trade as traders sneak in cheaper products through the porous borders.

Production at the East African Breweries Limited plant in Nairobi/FILE
PAYMENT: Production at the East African Breweries Limited plant in Nairobi/FILE

The increase in excise tax on beer, spirits and advertising is making Kenya uncompetitive compared to regional markets, East African Breweries Limited now says.

This, coupled with runaway inflation which last month hit a two-year high of 7.9, is poised to affect spending trends by households that could hit the alcoholic and beverages market.

President Uhuru Kenyatta signed into law the Finance Bill 2022 on June 21, raising excise duty on beer by 10 per cent, an increase that the region’s biggest brewer is worried might reverse gains made during the post-Covid-19 recovery.

Beer products whose alcohol content exceeds six per cent now attracts excise duty at the rate of Sh134 per litre, up from Sh121.85.

That of spirits has increased to Sh335.30 per litre up from Sh278.70 per litre.

Excise duty on fees charged on advertisements by television stations, print media, billboard and FM stations, these products, is at 20 per cent, up from 15 per cent.

Tanzania and Uganda have not made any changes on duty for excisable goods.

In Kenya, bars, restaurants and other alcohol selling outlets have increased prices by between Sh10 and Sh20 across different brands, with some hard liquor going for up to Sh50 more.

Currently, a beer in Kenya goes for between Sh190 and Sh300 at most local bars, wines and spirits and nightclubs.

In Kampala, Uganda, a beer averages Ush4359 (Sh133), while it goes for as low as Sh100 in Tanzania.

“It is something that the government needs to deal with at some point otherwise it is making Kenya uncompetitive,” EABL Group managing director and CEO Jane Karuku said yesterday.

The high prices in Kenya have been blamed for fuelling growth in illicit trade as traders sneak in cheaper products through the porous borders.

This is denying the government an estimated Sh78 billion in revenues annually, according to industry data.

“Repeated tax increases on alcohol, for example, have created a situation whereby nearly half, about 44 per cent of the alcohol consumed in Kenya is illicit,” Retail Trade Association of Kenya (Retrak) CEO Wambui Mbarire notes.

Even so, EABL is projecting a good performance after more than doubling its profits for the year ended June, which grew to Sh15.6 billion from Sh7 billion same period last year.

Net sales grew by about 27 per cent to Sh109.4 billion, up from Sh86 billion the previous year.

These were boosted by double-digit growth across all its markets and categories owing to an improved operating environment as outlets reopened, coupled with sustained investment behind marketing and commercial activities, management said.

“EABL navigated rising inflation and increased excise taxes through strategic pricing and effective cost management to deliver its highest profit in five years,” said Karuku, during a media briefing on the group’s performance, in Nairobi.

Kenya contributed 68 per cent of its revenues while Uganda and Tanzania accounted for 18 per cent and 14 per cent, respectively.

“Although these results show we are now ahead of our pre-Covid growth trajectory, the challenging macro-economic environment, volatile tax and regulatory policy will continue to impact our business,” Karuku said.

EABL’s board has declared a final dividend of Sh7.25 per share, adding to an interim dividend of Sh3.75.

The Nairobi Securities Exchange listed firm resumes the issuance of dividends at the full year stage after scrapping the pay-out last year, over a poor run during the pandemic.

This brings EABL’s total dividend for the period to Sh11 per share or a cumulative pay-out of Sh5.7 billion.

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