Excise Duty Bill sparks tug-of-war over Kenya’s tobacco market

The controversial Excise Duty Bill 2015 awaiting the President’s signature has been criticised by lobby groups for contravening World Health Organisation (WHO) conventions on tobacco control, which Kenya agreed to follow.

In the proposed law, plain cigarettes or cigarettes with an ex-factory selling price of up to Sh2,750 per mille are to attract a Sh900 levy per 1,000 units.

Cigarettes in soft-cap packaging with a selling price of between Sh2,751 and Sh3,750 per mille will face a Sh1,200 tax, while Sh2,800 will be levied on those in hinged-lid packaging with a selling price of more than Sh4,750 per 1,000 sticks. This is an increase from a tax rate of between Sh495 and Sh1,696.20.

According to the International Institute for Legislative Affairs (IILA), these new tax bands negate the gains the country has made since 2010 and will encourage substitutions, particularly among low-income groups. “Cigarettes will be much more affordable to the young generations. More so, these amendments will be manipulated by business people through price changes,” said IILA in a statement.

However, Kenya is already a ‘smoking nation’ with or without the appending of the bill. According to WHO, the country’s smoking prevalence stands at eight billion sticks annually - or 200 cigarettes per person - up from 6.4 billion in 2013.

Illicit trade

African Regional Coordinator for the Australian founded McCabe Centre for Law and Cancer, Rachel Devatsu said the tax laws in the country have allowed manufacturers to manipulate the market.

“Tax is not levied on products destined for export but for local market. ...therefore declares a lot of products for export market, only to reach the border and they are diverted back to the country. Technically, we then have untaxed products in the market sold at a very cheap price,” said Devatsu on an interview with an Australian radio station.

Kenya’s largest tobacco processor, British American Tobacco (BAT) has insisted that it is not to blame for the influx. “Fighting the illegal practice of tobacco trade is at the heart of our business,” read a statement from Communications Manager BAT, East and Central Africa Area Jack Kithinji. “We have an in-house team dedicated to countering illicit trade and over the years have invested significant resources to tackle this criminal activity. This has greatly enhanced sustainable government revenue.”

Kithinji said BAT has been a major contributor to government revenue in taxes with Sh15.4 billion being paid in 2014 as excise duties, VAT, corporation tax and PAYE to KRA. “All products manufactured for either domestic or export markets follow very stringent governance protocols set by the customs authority.”

BAT said it has partnered with the Kenya Association of Manufacturers and the Judiciary to develop and publish the Anti-Illicit Trade Enforcement Manual – a legal document that consolidates all laws relating to illicit trade in the country with the purpose of strengthening the prosecution process.

“Additionally, the company has supported the work of Law Enforcement Agencies such as the Police, the Kenya Revenue Authority and the Anti-Counterfeit Authority through facilitating training and awareness seminars to build capacity in this regard,” BAT said.

Devatsu said that the government’s efforts to mark products for exports as well as track them out of the country was met with lack of support from neighbouring countries: “We could track the marked cargo but since our neighbours do not have similar tracking system, the cargo would be repackaged and re-introduced back into the Kenyan market.”

She added that the introduction of a track and trace system by the Kenya Revenue Authority (KRA) has partly improved in curbing the tobacco smuggling business. “This involves doing random checks in the market whereby if a cigarette is found in the country that had been destined for export, the manufacturer will be traced and questioned. The system also allows country to country coordination in tracking of cargo,” said Devatsu.

Multi-faceted

BAT acknowledges that the illicit trade of tobacco in East Africa region is a transnational, multi-faceted issue, “this requires a collaborative approach to tackle it, from governments and law enforcement agencies to the industry players. More so, we applaud the government of Kenya on the strides it has taken to combat illicit trade in tobacco and other products in the Kenyan market.”

The Government’s conflict of interest on how to balance between abiding by the WHO regulation on tobacco and creating favourable environment for the manufacturers has put Kenya in a tight space.

With all said and little being done, BAT believes the manufacture, distribution and sale of tobacco products should be regulated: “We support balanced, evidence-based and workable regulation that measurably reduces the public health impacts of tobacco products. However any such regulation should be consistent with the Constitution of Kenya, principles of better regulation and be transparent, accountable, proportionate and enforceable.”

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