Manufacturers are caught in a scramble to set new prices after the National Treasury gazetted new excise stamp fees for the commodities as the government chases more revenues.
A spot check among manufacturers revealed that the cost of 14 categories of excisable goods including cosmetics, fruit juices, and alcohol will increase by next week.
National Treasury Cabinet Secretary Njuguna Ndung’u last week gazetted the Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023 that set new fees charged on those products.
The manufacturers, however, claimed betrayal by the Treasury after it ignored their input on the regulations during the public participation in the proposed rules.
The Kenya Association of Manufacturers (KAM) says the new rates come despite stakeholders having objected to the increase in the Excise Goods Management System (EGMS) stamps.
“We are, therefore, deeply concerned that despite the public participation engagement, none or part of our submission was considered, and the legal notice is a replica of the proposals published,” said KAM chairman Rajan Shar.
The new stamp fee for cigars, tobacco substitutes, electronic cigarettes, and other tobacco products has been set at Sh5 per stamp as well as that of liquid nicotine, products containing nicotine, wines, and alcoholic beverages made from fermented fruits.
This is a sharp increase from the Sh2.80 stamp fee that cigarette products were being charged.
Treasury has also set the fee for compounded alcohol spirits with a strength of more than six per cent at Sh3 per stamp down from the Sh5 it had proposed in January.
Alcohol has been attracting a stamp fee of Sh2.80 per stamp.
Beer will be charged Sh3, bottled water Sh0.5, and fruit juices, cosmetics, and beauty products Sh2.2.
This is also a significant increase from the Sh0.6 per stamp that cosmetics and beauty products have been attracting.
The stamp duty increment comes barely five months after the Treasury effected a 6.3 per cent inflation adjustment on specific excise tax rates was effected on October 1, 2022, impacting cosmetics, confectionary, alcoholic and non-alcoholic beverages including bottled water, and tobacco and nicotine products, among other products.
BAT review
British American Tobacco Kenya (BAT Kenya) says it is reviewing its position on the new stamp rates but warned that the higher duties could lead to consumers switching to cheaper illicit products as manufacturers pass on the added cost to consumers.
“BAT Kenya is reviewing its position following the 79 per cent increase in the excise stamp fees applicable to tobacco and nicotine products,” said BAT Kenya Managing Director Crispin Achola.
“We are disappointed by this move as it is not reflective of industry views, which were submitted to the government during the stakeholder engagement process. The potential implications of increasing the cost of tax stamps for tobacco and nicotine products include exerting additional pressure on consumers who are already stretched by the rising cost of living and widening the differential between legitimate tax-paid products locally and in the EAC,” said Mr Achola.
The inflation adjustment also came just three months after the Exchequer had increased excise taxes by between 10 per cent and 20 per cent through the Finance Act, 2022 that took effect on July 1, 2022.
The Kenya Revenue Authority (KRA) has already reminded the companies that locally manufacture or import excisable products in some 14 categories of the new rates that took effect last week.
“Dear taxpayer, kindly note that the excise stamp fees have been revised as provided in Legal Notice No. 30 of 2023 tiled The Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023 with effect from March 31, 2023,” said KRA in a notice.
Manufacturers say the Treasury ought to have compared the cost of stamps manufactured by the same company in the East African region.
“From our analysis, Kenya’s cost is among the highest in this regard with the price of the stamp and its administrative requirements costing the same as the price of the product. This continues to make Kenya uncompetitive as an investment hub,” said the KAM chairman.
Excise duty is the third largest tax collected by KRA and is poised to play a major role in achieving President William Ruto’s plan to raise revenue collection and cut the budget deficit.
KRA targets to collect Sh297.2 billion from excise duty by June and to increase this to Sh521.5 billion in 2027. BY DAILY NATION