Cigarette maker BAT faults Treasury over raised ‘sin’ tax

Cigarette maker BAT has challenged the Government’s plan to burden tobacco and alcohol companies with more taxes. The firm says the move may be counterproductive.

According to the proposed Excise duty regulations, the State intends to raise more revenue by slapping select manufacturers with more taxes, a move that BAT says will affect its business in Kenya.

“BAT Kenya continues to grow shareholder value despite the difficult trading environment in Kenya and many of our export markets,” said BAT Kenya Managing Director Beverley Spencer-Obatoyinbo yesterday during the release of the company’s half-year financial results.

Ms Obatoyinbo said a predictable and stable tax environment in Kenya is critical for the growth of businesses and the manufacturing sector.

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“We are disappointed by the 15 per cent increase in excise duty on cigarettes, wines, and spirits proposed in the Finance Bill 2019,” she said.

Obatoyinbo also said BAT will continue to engage the Government on the matter in a bid to protect consumers and shareholder value, which she said is threatened by illicit cigarettes.

Illicit trade

She said latest data on illicit trade indicates that a marginal decline in the last six months has been offset “by a significant increase in the volume of illicit cigarettes coming across the Ugandan border, which now accounts for approximately 70 per cent of all tax-evaded cigarettes in the country.”

As a result, the firm said the illicit business continues to deny the State up to Sh2.5 billion in revenue annually.

“We are extremely concerned that this latest excise shock will exacerbate the problem by increasing the affordability challenges and could even incentivise foreign entrants into the illicit space, undermining Government efforts to address the problem,” she said.

BAT said it managed to post an after-tax profit of Sh2.5 billion due to excise led pricing “which more than offset the higher costs associated with lower sales volumes in Kenya and the Democratic Republic of Congo as a result of the continued impact of affordability challenges.”

The company recommended an interim dividend of Sh3.50 per share to be paid to shareholders by September 20.

“Despite this performance, sales volumes in Kenya have continued to decline owing to the high levels of tax-evaded illicit cigarette sales in Kenya, which stood at 14.1 per cent at the end of 2018,” said Ms Obatoyinbo.   

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