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BY JOHN NJIRAINI

Two leading cigarette manufacturers are embroiled in a major turf war over a proposed amendment to the Finance Bill 2010 on cigarette excise duty.

The chairman of Parliament Finance Committee Chris Okemo yesterday moved a notice to amend the Finance Bill, which if enacted, will change the current criteria used for charging excise duty on cigarettes.

This means the current set up whereby excise duty is based on description of cigarettes — that is plain cigarettes (those without filters), soft cap (those with soft packaging) and hinge lid (those with hard packaging) — will not apply.

Currently, plain cigarettes with a retail price of up to Sh2, 500 per mille attracts a duty rate of Sh700 per mille. Soft cap cigarettes retailing at between Sh2, 501 and Sh3, 500 per mille attract duty of Sh1, 000 per mille, while those retailing at between Sh3,501 and Sh4,500 per mille attract duty of Sh1,500 per mille. Hinge lid retailing at Sh4, 500 per mille attracts duty of Sh2, 500 per mille.

Mastermind Tobacco Kenya says the new rates will increase Government revenue through growth occasioned by the stability in pricing and expanded tax base. [PHOTOS: COURTESY]

Though rates will remain unchanged, some cigarettes could move to a higher excise duty rate, while others could move to a lower rate, changing existing market dynamics.

Formal proposal

The idea to amend the Finance Bill originated from a formal proposal by cigarette manufacturer, Mastermind Tobacco Kenya, to the Parliamentary Committee on Finance, Planning and Trade. In the proposal Mastermind said the current regime favours multinationals while curtailing the survival of indigenous manufacturers.

"If implemented, our proposal will increase Government revenue through growth occasioned by the stability in pricing and expanded tax base," said the letter by Mastermind, which controls about 20 per cent of the cigarette market.

But leading manufacturer, BAT Kenya, which commands close to 80 per cent of the market, has strongly opposed the move, saying it will affect competition, and could deny the Government Sh2 billion in revenue.

"If BAT dropped the retail selling prices of affected brands from the current tiers to adopt to the new tiers, tit would have some considerable effect both on the competition and Government revenues," states a letter addressed to the Finance Committee, and copied to the Ministry of Finance.

Reviewing impact

When contacted, BAT Kenya Regulatory Affairs Manager, Eric Kiniti, said the company was in the process of reviewing the impacts of the proposals.

"We are reviewing the impacts of the proposal on our brands. So I cannot discuss the matter now," he said.

Efforts to contact Mastermind were fruitless as the head of public relations was said to be in meetings.

Cigarette duty rates have remained constant over the past few years despite being among those in the ‘sin bracket’ that finance ministers target to tax in the budget.