Kenyans want a tax break on beer and heavier taxation on spirits, the ‘Citizen Alternative Budget’ has found out.
The survey on the aspirations of the ordinary Kenyan revealed that beer drinkers were paying for the consumers of the cheaper alcoholic alternatives of wines and spirits, through the current ‘distorted’ excise tax policy.
“Given that spirits and wines have a higher alcoholic density by volume compared to beer, the disproportionate taxation of beer implies that beer cross-subsidises spirits sold in the Kenyan market,” said Institute of Economic (IEA) Affairs Programme Officer Raphael Muya said.
Kenya Revenue Authority (KRA) levies excise duty on alcoholic drinks by volume, rather than the alcohol content as proposed by the IEA. Spirits such as whisky, gin and vodka attract Sh120 per litre or 35 per cent of price whichever is higher while beers are taxed at Sh70 per litre or 50 per cent per litre, whichever is higher. That taxation matrix has informed a huge market shift that has seen consumers ditch beers for the cheaper spirits.
In response, dozens of distillers have sprung up in all major towns where the manufacture of spirits is booming business. But the proposal to change the taxation formula could spell doom for such distillers and consumers.
“The excise tax policy for alcoholic drinks should standardise the amount of taxes extracted based on alcohol volume of a product as opposed to the quantum of litres,” said Muya.
That proposal, he said, would reduce the distortion that occurs by taxing alcohol by litres consumed as opposed to the density of pure alcohol in a product. The public policy think tank was presenting a summary of proposals by different stakeholders who had attended a public forum in January. A review of the ‘sin tax’ guidelines is only one of a long list of proposals collected and synthesized by the IEA.
Other proposals were also presented touching on the various sectors of the economy such as agriculture, health and the informal sector. Kenyans want the next national budget to reduce the market gate collection fees for small traders. That proposal would encourage small traders to transact their businesses within confines of markets rather than hawk their wares, the body reported.
“In the process, hawkers do not go to markets, evade streets and engage with authorities,” the report presented, in reference to the happenings in the central business districts of Nairobi and other major towns. Typical market gate fees are Sh1,800 per lorry delivering foodstuff and other wares, Sh200 per bag and Sh50 per trader, which all add to the high cost of doing business.
Depressed margins
Participants in the public forum also proposed that the budget should have a bigger allocation to agriculture, with funds directed to commercialisation of farming. “No transformation will occur with the traditional models of subsistence,” the think-tank reporting adding, “The youth will only venture into agribusiness when it is clear that there is money in farming.”
A review on the pricing formula for petroleum products was also proposed, with IEA faulting the applicable mechanism because it does not take into account macroeconomic factors such as interest rates and inflation.
That proposal is hoped to cushion oil marketers and petroleum retailers from shocks as their profit margins are already ‘depressed’ and therefore unlikely to absorb unforeseen events.
IEA has presented the proposals collected in January 28 and 29 to the National Treasury, for possible inclusion in the 2015/16 budget whose proposal has been tabled in Parliament.
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