High taxes will drive alcohol manufacturers out of Kenya - ABAK

Alcohol brewers and distillers have faulted the Finance Bill 2024 saying it introduces double taxation. 

The Alcoholic Beverages Association of Kenya (ABAK) said the net effect of some provisions in the proposed law could drive alcohol manufacturers out of the country.

The Finance Bill 2024 proposes to amend the Excise Duty Act by deleting Section 14 of the Act effectively removing the provision that allows manufacturers to claim input tax.

If passed in the current form, manufacturers argue they would end up paying more than double the tax they pay.

“The net effect of this is that local manufacturers will be subjected to double taxation of the products at input stage and at the finished goods stage, whereas imported products will only be charged excise tax on the finished goods,” said ABAK chairman Eric Githua at a press conference in Nairobi.

The scrapping of the relief will push up the cost of locally produced spirits, making them less competitive and potentially stifling local manufacturing initiatives.

“It will turn Kenya into a net importer of excisable products, becoming uncompetitive within the East African Community, where significant manufacturers exist thus encouraging cross border illicit trade as products will be cheaper in the neighbouring regions,” Githua added.

Calculated based on a millilitre bottle of the most popular spirit varieties, the cost would move from Sh300 to Sh770, which also factors in the proposed increase in Excise Duty on the finished product.

“No other country is charging excise duty on raw materials. We are basically shooting ourselves in the foot because nobody will want to invest in this country and we will become net importers,” said ABAK secretary Eric Kiniti.

Overall, ABAK, said, the effect of this year’s Finance Bill combined with other actions taken by the government over the last 12 months, is the creation of an environment that would not be conducive for business.

At the national level, the implementation of the set of directives by the Ministry of Interior and Coordination of National Government, aimed at tackling alcohol and drug abuse, has resulted in the unfair and un procedural restriction of retailers.

At the county level, county governments, mostly in the Central Kenya region, have been implementing laws passed by their county assemblies containing restrictions that are unfair to business and inconsiderate of the investments by entrepreneurs, sector players have said.

“Some of the unreasonable provisions include banning electronic advertisements for alcohol, limiting transportation of alcohol at night, limiting advertising using branded vehicles, and mandatory branding of vehicles,” said Kiniti.

The sector was spared an increase in the tax in last year’s Finance Act as Treasury awaited the results of a study it had commissioned undertaken by the University of Copenhagen and the Africa Economic Research Consortium, to establish the ideal taxation model for alcoholic beverages.

The study established that beer had already reached the maximum taxation level and that Kenya’s taxation rates are higher than the global average and are by far the highest in the region.

It also recommended the change in the approach to taxation of alcohol to taxing based on alcohol content.

On spirits, three scenarios were presented–to maintain the rate at the current level of about Sh8 per centiliter, increase it to Sh12 or Sh16.

Treasury settled at Sh16 per litre, which ABAK argues is sudden and would jolt both consumers and manufacturers and roll back the gains made in fighting the proliferation of illicit alcohol.

“Having one shock increase in one year is too sudden. It would work better for everyone if the increase was to be graduated over several years,” said Githua.

The biggest risk, he said, would be that many consumers resort to illicit alcohol, which is already at an all-time, with a study by Euromonitor International in 2023 having established that 59 per cent of alcohol sold in Kenya is illicit.