Kenya Breweries says the high taxes on spirit has led to an increase in counterfeit brands and illicit liquor trade which has subsequently driven down revenues.
The brewers is concerned that the current taxation rates are at a tipping point and any further increase would result in diminishing returns and further the illegal trade.
It now wants the government to weigh down on the current taxes to address the twin problem of illicit alcohol in the country and the falling tax revenues from the category.
“The government needs to rethink its tax policy,” said Mark Ocitti, KBL’s managing director.
He spoke during a media engagement session at the East Africa Breweries Limited Ruaraka headquarters on Tuesday.
“A recent industry report from [market research firm], Euromonitor indicates that nearly two-thirds of alcohol being consumed in Kenya is illicit, meaning that far more people are resorting to the bad stuff which is denying the Exchequer due revenues,” said Ocitti.
The MD said spirits have faced double-digit annual excise tax increases since 2015, deepening an affordability problem that has now been worsened by the runaway input costs such as ethanol, which went up 61 per cent in the last financial year.
He said as a result, KRA's excise tax collections from spirits dropped by 20.7 per cent in the first quarter ending September 2023, pointing to a shift in spending patterns as consumers downgrade to illicit alcohol.
"These figures suggest a downward trend in legal mainstream spirits performance, which recorded first slump ever in the year ending July this year," said KBL.
Ocitti said whereas beer category tax collections are likely to grow fastest in this financial Year and encourage Treasury to hold taxes for longer as consumers adjust to pricing changes in recent years, spirits performance remains a concern.
He said the industry faces a new legal requirement to make Excise Duty payment within 24 hours, compounding its players’ cash flow positions at a time cost inflation has hit the manufacturing industry hardest.
The new provision was introduced at the final stages of this year’s Finance Act on the basis that it would help tackle illicit alcohol.
Previously, Excise Duty returns were done monthly, but the new requirement means that the taxes are paid in advance, even on weekends.
“The provision to pay Excise Duty in advance has been difficult to implement,” Ocitti said.
In a presentation to the National Assembly’s Finance Committee, KRA reported that while taxes from beer increased by 7.3 per cent during the period, fuelled by the government’s move to hold excise tax, spirits revenue performance dipped for the first time in years.
KRA further reported that Excise Duty collected domestically grew by 22.1 per cent, to Sh20.4 billion in the first quarter of the current fiscal year.
Excise Duty collected from beer increased by 7.3 per cent, soft drinks by 21.2 per cent, bottled water by 7.8 per cent and cosmetics by 13.3 per cent.
“The performance was mainly driven by increase in delivered volumes of beer, soft drinks, bottled water and cosmetics,” KRA said.
