By Jackson Okoth
Manufacturers in the local alcohol industry can breathe easy for a while. This is after a proposal by Kenya Revenue Authority (KRA) to levy new excise duty rate on alcoholic drinks failed to take off.
In the 2012 budget (2012/2013), Finance Minister Robinson Njeru Githae had directed that excise duty on wines, spirits and beer on the retail price. This is opposed to the current system where tax is levied on the factory price. This change in the taxation method has been described as unworkable by KRA.
The authority led by Commissioner General John Njiraini has been holding lengthy discussions with Treasury in seeking for guidelines on how to go about the new taxation.
The plan was for KRA to take a sample price of all alcoholic beverages across the country and different outlets after every three months.
“It is difficult to determine what the price of a bottle of beer retails at a hotel, private golf club or at a bar or supermarket. It is therefore unworkable to levy excise duty on a retail price that does not exist,” said Nikil Hiira, a partner at said Nikil Hiira, a partner at Deloitte and Touché.
There are fears that if excise duty is levied at the retail level, it could be difficult for alcohol manufacturers to do their costing because tax levels will always be moving after every three months.
Sources maintain that KRA has insisted that this proposal be shelved and a new approach used to tax the alcohol industry, considered one of the highest corporate taxpayers.
Incidentally, while the formal alcohol market is highly taxed and experiencing slow growth, it is the illicit trade in distilled liquor that is thriving and hidden away from the taxman. Trade in illicit brews is big business mostly in the rural areas where low-income drinkers who cannot afford a bottled beer reside. It is estimated that trade in these informal-sector drinks - fermented and distilled - is probably five times as large as the legal trade in bottled beer, wines and spirits.