State at a crossroads over wines, spirits tax laws

By James Anyanzwa

Treasury faces the hard position of reconsidering its tax-law on wines and spirits in order to protect jobs and revenues.

Industrialisation minister Henry Kosgey has said the negative effects of duties imposed on this category of beverages during the last budget was not given due consideration.

He said it was after the enactment of the Finance Bill 2008 into law when it dawned that double-taxation had been introduced on these commodities, both at the agrochemical processing level (95 to 96 per cent) and brewing level (40 per cent).

This, he said, had caused the total tax burden to manufacturers of concentrated wines and spirits to escalate to more than Sh600 a litre.

Fair business

"We want a level playing field so that we don’t give importers undue advantage over local manufacturers," Kosgey told reporters after meeting the National Alcoholic Beverages Association of Kenya stakeholders at his Telposta offices in Nairobi, yesterday.

"It is in the interest of Kenyans. We don’t want to lose jobs, we don’t want to lose revenues." He said imported spirits are cheaper than those manufactured locally, creating leeway for smuggling products into the country.

"It is cheaper to bring in spirits from Uganda and Tanzania and sell them locally because they don’t attract higher duties in these countries," said Kosgey.

He said the Government was losing part of its projected revenues as companies laid off staff and clamped down on production in their bid to deal with shrinking sales volumes.

"We must have a properly harmonised tax regime to be able to benefit from the expanded East African Community market," he said. But even as concerns over the contentious taxes heightened, Treasury is understood to have maintained that the new tax regime was unlikely to change, as it was intended to harmonise taxation levied on local products with that of imports.

The revised tax regime has seen local manufacturers’ tax burden rise from an average of Sh200 a litre of concentrated spirit to Sh674.80, forcing the operators to increase retail prices by more than 120 per cent in the low-end market, a segment that is critical to the industry survival.

The current method of excise tax referred to as rate per litre requires manufacturers to pay excise duty while purchasing concentrated spirit. As such, local manufacturers are required to pay taxes when buying spirits from the dealers.

(See full report in FJ)