New tax Bill serves up surprises as grieving costs rise, shisha takes a hit

Losing a loved one or seeing them suffer from a critical medical condition is painful. It is also going to get more expensive, thanks to the Excise Duty Bill, 2015, which is awaiting debate in Parliament.

The Bill introduces excise duty on some classes of motor vehicles — those that fall under the 87.02, 87.03 and 87.04 tariffs, which include ambulances and hearses.

According to the Bill, motor vehicles less than three years old from the date of first registration will attract an excise duty of Sh150,000 per unit, while those more than three years old from the date of first registration will be slapped with Sh200,000 in duty.

Jurgen Murungi, a tax services manager at audit firm PricewaterhouseCoopers, said this will affect ambulances and hearses, which are categorised under the 87.03 tariff, according to the East African Community Common External Tariff (EAC-CET).

“To understand which specific vehicles are affected, one needs to read the tariff codes. Reading the EAC-CET, ambulances and hearses fall under tariff code 87.03.90, hence they are affected by the duty rate as specified based on the year of manufacture,” said Mr Murungi.

In a country where about 70 per cent of citizens have neither medical insurance nor funeral cover, this measure is akin to adding salt to injury. For many Kenyans, one of their greatest fears and causes of financial distress is having a loved one diagnosed with a critical illness.

Lavish burials

Kenyans also tend to hold lavish burials to give one a proper send-off. As a result, a booming industry has grown, with hearses one of the trappings of modern funerals. Could their popularity be one of the reasons hearses have attracted duty — similar to the reasoning that has long informed the annual increases levied on tobacco and alcohol?

Lilian Kubebea, a tax director at Deloitte East Africa, said the harmfulness of a good or service is not the only determinant of imposing duty — which is a way of compensating the Government for the externalities related to production, supply or consumption of goods and services.

“A product or service does not only need to have negative externalities. If its demand is considered inelastic and can raise revenue, it can be included in the excisable schedule,” she said.

An inelastic good or service is one whose demand does not decrease when the price increases.

Interestingly, while the Bill introduces excise duty on hearses and ambulances, excisable goods imported or purchased locally by the Kenya Red Cross for official use in the provision of relief services in Kenya are exempt.

While this is laudable, as Red Cross is doing a good job saving lives and offering free emergency responses in some cases, it defeats logic as both private ambulance services and the humanitarian organisation deal with critical healthcare.

Still, while the Bill takes away with one hand from the bereaved, it rewards them somewhat with the other.

The proposed law exempts from excise duty one motor vehicle previously used by deceased persons outside Kenya. However, this is subject to conditions specified by the commissioner.

The Bill also exempts from excise duty one motor vehicle used by persons with disabilities. This will apply once in every four years and upon payment of taxes on the previous vehicle.

On the face of it, this is a positive gesture from the Government that will go a long way in alleviating the suffering people living with disabilities face trying to get around in Kenya. But perhaps exemption from excise duty should have been extended to public service vehicles that are wheelchair friendly.

Tax swoop

Other victims of the Bill include perennial targets: cigarette manufacturers, suppliers and consumers. Cigars, cheroots, cigarillos and tobacco substitutes have been slapped with an excise duty of Sh10,000 per kilogramme.

Electronic cigarettes (e-Cigarettes) — which are battery-powered devices that deliver varying levels of nicotine to a user through vapour — have not been spared either. They will attract an excise duty of Sh3,000 per unit, and their cartridges a Sh2,000 per unit tax.

And still on matters smoking, shisha, a popular pastime for urban youth, is also in the taxman’s sights. There has been the argument that shisha is not as harmful as cigarettes. But both are made from tobacco and have nicotine, the harmful, addictive substance in tobacco. Anyway, the Government is not really interested in arguments for shisha.

In the Bill, “other manufactured tobacco and manufactured tobacco substitutes, ‘homogeneous’ and ‘reconstituted tobacco’, tobacco extracts and essences” face an excise duty of Sh7,000 per kilogramme. This tax swoop also affects tobacco snuff, or mbake in local parlance.

And when it comes to alcohol, the Bill imposes an excise duty of Sh150 on wines, including fortified wines, and other alcoholic beverages obtained by fermentation of fruits. Powdered beer gets a Sh100 per litre levy.

There is also excise duty of Sh100 per litre on beer, cider, perry, mead, opaque beer and mixtures of fermented beverages with non-alcoholic beverages.

Unexpectedly, the Bill introduces a Sh10 per litre excise duty on fruit juices and vegetable juices, as well as a Sh10 per litre levy on “waters and other non-alcoholic beverages”.

This is despite Treasury Cabinet Secretary Henry Rotich promising during his Budget speech earlier this month that, “... all bottled water will, upon enactment of [the Excise Duty Bill, 2015], not be taxable. Similarly, all other goods that have no harmful effects, hereto taxable under the Customs and Excise Act, will not be taxable under the new law.”

In all, Mr Rotich said he expects to raise Sh25 billion from the measures listed in the Excise Duty law.