Taxman should be probed over lopsided excise duty system deal

The Kenya Revenue Authority’s (KRA) leadership deserves commendation for growing tax revenues at a rate that is faster than that of the country’s Gross Domestic Product (GDP).

Total tax collections in the financial year ended June increased by Sh100.1 billion to Sh1.44 trillion, a 7.47 per cent rise compared to Kenya’s GDP growth rate of 5.7 per cent.

But the tax agency and Treasury must know that revenue growth should not be pursued at the expense of industrialisation as it raises the cost of doing business.

Claims by producers of bottled water, processed juices and cosmetics that the Excisable Goods Management System (EGMS) set to be implemented next month by SICPA Securities Solutions should be investigated.

Particularly troubling are reports that the contract signed between SICPA and KRA has clauses protecting the Swiss firm against being penalised for underperformance.

Make uncompetitive

Yet, the same contract has clauses that penalise KRA in the event of partial or full termination or if KRA is in default.

Reports further indicate that the SICPA system suffers frequent breakdowns that cost manufacturers up to 1.5 per cent of downtime in the production lines, leading to loss of sales is equally troubling in a sector that has also to deal with frequent power outages.

The requirement that manufacturers will have to bring expatriates from Switzerland to install and maintain the EGMS system at their cost will up the production costs which will, in turn, be passed on to consumers.

The result is constrained demand for the affected consumer goods, making them uncompetitive regionally.

There should be a consensus in ministries that increasing costs of production is not the right way to power Kenya’s industrialisation. Instead, we should ramp up exports to spur economic development.

It also calls for a serious look at various tax-raising measures that the State has adopted lately and their implementation.

KRA’s contract with SICPA should be the first one to be investigated.

The contract should be allowed to lapse as provided for in the initial agreement and the tax agency should not be allowed to extend it.

Let a forensic audit of the contract be extended to the Attorney General’s chambers to find out the rationale behind the signing of such a lopsided deal.