Lack of clarity on the increased duty on alcoholic beverages has created a new loophole for infiltration of illicit drinks in the market and thrown the industry into confusion.
The uncertainty is likely to play out at a higher scale as the holiday season, which is usually the peak time of alcohol sales, kicks in.
Some industry players say the confusion is centred on the date the new tax rates should take effect since the Kenya Revenue Authority is yet to publish a public notice.
“Despite the President having signed the bill into law, KRA has not given any written confirmation in newspapers to clarify the new rates and the date of commencement,” a source in the liquor industry, who did not want to be named as he is not authorised to speak to the press, said.
The source said despite the excise duty increasing to Sh253 per litre, some retailers are selling a 250ml bottle of spirit and brandy between Sh100 and Sh105.
The players argue that given the new excise duty, a 250ml bolted bottle — which attracts an average of Sh63.25 in excise duty, Sh2.85 for excise stamp, Sh16 for empty bottle, Sh3 for the bottle top, Sh25 in spirit cost and production cost of Sh12 — the bottle cannot go for less than Sh122, which is the cost of production before Value Added Tax.
KRA has previously tried to institute minimum price controls for alcohol but the decision ran into legal headwinds as it would be against the competition laws, which only allow the setting of recommended retail prices that are nevertheless not binding.
The law says such a practice is preventive of competition and hence illegal.
The taxman had already informed distillers that they would only be allowed to bottle spirits in 250ml units at minimum and to consider adjusting the prices to at least Sh150 or risk having their products impounded.
The law allows manufacturers to recommend retail prices, which should not be binding.
“Restrictive trade practices which directly or indirectly fix purchase or selling prices or any other trading conditions in Kenya, or a part of Kenya, are prohibited, unless they are exempt in accordance with the provisions of Section D of this Part,” the Competitions Act says.
Distillers blame counterfeiting and smuggling for the sale of cheap liquor in many parts of the country.
They say the alcohol gets into Kenya through Isebania on the Tanzania border and Malaba and Busia town in Busia County on the Ugandan border.
Alcoholic Beverages Association of Kenya chairman Gordon Mutugi said fighting counterfeits and creating awareness is continuous but added that he is happy with the efforts made.
Mr Mutugi said about 40 per cent of alcohol consumed in the country is illegal and cannot be accounted for.
Last week, the Directorate of Criminal Investigations impounded more than 13,500 litres of ethanol in Loitokitok, Kajiado County.
The detectives made the seizure when searching two lorries parked near a bank following a tip-off.
Fifty-four drums filled with ethanol were hidden under a cargo of watermelon fruits and wheat husks.
There are other groups which specialise in importing illegal stamps from China and using them on the illicit liquor bottles, making the government lose millions of shillings in revenue.
The distillers say Market Intelligence Unit officials investigate and prosecute legitimate players, turning a blind eye on cartels.
Mr Mutugi called on the government to appoint a multi-agency team to clean up the alcohol market in Kenya. He urged KRA to step up market surveillance to eradicate sale of illicit liquor.