Tobacco firm says tax regime favouring rival

By MACHARIA KAMAU

Two major tobacco firms in the country are embroiled in a battle over the new excise regime that charges a flat rate on all tobacco products as opposed to a previously where the tax was pegged on product category.

The new regime was factored in the budget for this financial year and became effective last June but Mastermind Tobacco said it had given an undue advantage to its rival BAT Kenya.

The new structure taxes cigarettes uniformly as opposed to a previous four tier regime, where cigarettes were placed A, B, C and D categories and taxed accordingly.

Mastermind prefers the four tiered system saying the new order gives an undue advantage to its competitor by lowering taxation on BAT’s products while increasing those of Mastermind. The firm has petitioned Treasury to review the new regime.

But BAT Kenya favours the flat rate system. Gary Fagan managing director said the regime has encouraged competitiveness in the industry and improved government revenues in the second half of 2011. The system came in place mid last year.

"We were encouraged by the Government’s decision to adopt a hybrid excise system last year as a step towards a sustainable excise position by Kenya’s tobacco industry. As an industry we should peruse an excise regime that supports elimination of illicit trade," said Fagan.

He told a shareholders’ meeting that the government should adopt a stable excise policy, which he said was essential for revenues to both Government and the industry.

Mastermind Corporate Affairs Manager Josh Kirimania said the unitary system has made imported tobacco products cheaper than those produced locally.

Legal basis

"The long pending Kenya Excise Act ought to be enacted to lay down the legal basis for excise tax in Kenya. The act ought to define the various categories of excisable goods, define the harmonised rates for all excisable goods and harmonise common procedures and standards," said Kirimania.

The firm further wants the Government to put in place a law that will be solely dedicated to the excise tax regime in the country as a long term measure to prevent yearly changes in pricing that cigarette manufacturers have had to grapple with over the years.

Excise tax, popularly referred to as sin tax, is taxed on luxury items like tobacco and alcohol and is usually deemed as a punishment to consumers rather than attempts by Government to increase revenue base.

In a letter to the ministry of finance dated March 9, the firm wants enactment of the Kenya Excise Tax Act that it said should set up a framework for government to charge excise tax as opposed to thecurrent situation where this is at the discretion of the minister of finance.