High taxation ‘driving illegal alcohol trade’
SEE ALSO :Diversify exports, Kenyans urgedMr Gudka was speaking Tuesday at the Anti-Illicit Trade Summit held in Nairobi where a White Paper on the trade in illicit alcohol beverages prepared by the Institute of Economic Affairs (IEA) was also launched. The paper, dubbed The Unintended Effect of Kenya’s Alcohol Regulation Policies, puts the alcohol market size of the formal sector at 56 per cent and the illicit trade at 44 per cent. It says the expansion of the informal sector would lead to a loss in Government revenue, job losses, reduce industry competitiveness and health effects. “Reduced production in the formal sector could turn into jobs losses within the industry because it remains untenable and impossible to maintain a bigger workforce,” says the report. Regulatory model
SEE ALSO :Why Enterprise Road remains an eyesoreThe paper also blames Kenya’s alcohol regulatory model for failing to recognise the existence of formal and informal markets. It says the formal sector was heavily regulated, making the informal sector thrive as a substitute. “Excessive regulation can generate the unintended consequences of driving demand for alcoholic beverages in the informal sector and generate worse health outcomes owing to the production methods employed in the latter,” adds the report. One of the “unintended consequences” of the excise tax regime is described by the report as increased excise tax revenues over the years as compared to inflation and economic growth. The excise duty, according to the paper, has also affected the pricing of alcohol.