Manufacturers and traders in the country are concerned over a planned review of taxes, which could put a further strain on industries, businesses and households.
This comes as Kenya remains under pressure from IMF and World Bank to increase revenue collections, as part of strategies to bridge the budget deficit and cut over-reliance on loans in the wake of a ballooning debt.
The government is aligning itself with a number of reviews on sin tax in the offing, with alcoholic beverages, tobacco products and gambling targeted.
This is under the Medium-Term Revenue Strategy by the National Treasury, for the financial years 2024-25 to 2026-27 where petroleum products are also targeted.
Treasury is also seeking to review a number of taxes, exemptions and tax reliefs, which will affect individuals and businesses, among them car owners who will be required to pay an annual motor vehicle circulation tax (wealth tax).
The Alcoholic Beverage Association of Kenya (ABAK) has protested the proposed 67 per cent excise tax hike on spirits, saying it will cripple the market and aggravate the sale of illicit alcohol.
According to an analysis by the East African Community (EAC) tax policy sub-committee, the tax proposals backed by the IMF seeks to raise the minimum excise rate based on litres of pure alcohol from the current Sh356.4 to Sh596.
ABAK is proposing a retention of the excise tax rates adding that increasing excise tax on spirits will worsen an already dire situation, with the proliferation of illicit alcoholic brands in the market.
“Retaining the rate of excise will result to increase in an average growth in excise revenue of 4.45 percent year on year from spirits depending on excise changes to other alcohol beverage categories,” says ABAK in its proposal to Treasury.
ABAK says multiple rounds of excise tax increases have cut government revenue from the alcoholic beverage industry.
Kenya raised excise tax on spirits by 20 per cent in July last year and a further 6.3 per cent the following October.
These increases were followed by separate hikes in 2021, significantly denting consumer wallets.
ABAK yesterday said policy reviews should be sensitive to regional trade trends, especially dumping of contraband alcoholic beverage products on account of lower prices in Uganda and Tanzania.
Uganda and Tanzania currently charge an equivalent of Sh99.70 and Sh260 respectively, compared Kenya’s Sh356.42 per litre.
Kenya Association of Manufacturers has also been cautioning against “over-taxation” which is making the country a “dumping site” for cheaper goods and counterfeits.
Uganda for instance, has been a major source of counterfeits and cheaper products mainly alcohol, juices, cigarettes and other non-alcoholic drinks.
In the last five years, the value of Kenya's imports from Tanzania has increased significantly, from Sh18 billion in 2018 to Sh54 billion in 2022, the Economic Survey 2023 shows.
“If Kenya is not careful, the country will become a supermarket of the region,” KAM warned.
In the financial year ended June 2023, KRA missed its Sh293.9 billion excise tax target by Sh29.5 billion, collecting Sh264.5 billion, Treasury data shows.
Ordinary revenue collection was Sh2.04 trillion against a target of Sh2.14 trillion.
Treasury CS Njuguna Ndung’u says the tax reforms are aimed at boosting domestic revenues which has been declining over time.
“A review of the tax policy landscape is critical to improve efficiency in revenue administration and identify loopholes for tax evasion and enhancing taxpayer compliance,” Ndung’u says in the strategy paper.
Treasury and KRA are under pressure to ensure an increase in revenue collection to fund this year's budget of Sh3.7 trillion, which is expected to increase to Sh3.99 trillion in 2024-2025, and Sh4.62 trillion in 2025-2026.
Treasury is planning to introduce excise duty on coal, a surtax, and a wealth tax which will see individuals who own motor vehicles pay an annual fee at the time of acquiring an insurance cover.
Meanwhile, Treasury is seeking to reduce Corporate Income Tax to 25 per cent from 30 per cent to encourage foreign direct investments.
Withholding tax applicable to income earned by non-residents will also be reviewed to align with the corporate tax rate.
The government also plans to phase out preferential corporate tax rates, while it continues with taxation on repatriated profits.
Treasury is also targeting rental income, re-introducing a minimum tax, VAT on services provided by schools that are not directly related to education, and VAT on insurance services.
National Treasury is also targeting the informal sector as it seeks to expand the tax base, even as it seeks to amend the Data Protection Act, which will allow KRA to access telecommunication data for the purpose of taxation.