Uhuru piles more misery on drinkers and smokers

Lilian Kubebea

Both regular occasional alcohol drinkers will dig a little deeper into their pockets to buy their favourite tipple.

The Minister for Finance has retained the same trend of targeting the "sin taxes" to help bridge the gap in the budget deficit. Uhuru Kenyatta this time round attributed the change in the taxation of beer as promoting simplicity and discouraging abuse.

The excise duty for both malt and non-malt beer has increased to Sh70 per litre or 40 per cent of Retail Selling Price (RSP) whichever is higher, and thereby harmonising the rates. This is a major shift in terms of the excise duty structure on beer.

 Kenya has from 2003 had a specific regime on beer meaning that the tax rate was charged on a per litre basis. The Minister has now proposed to change the structure to a hybrid one whereby the taxation will be based on both a specific and ad valorem (according to the value) regime, whichever is higher.

Therefore, in the case of beer, the difference in rate, especially for the non-malt beer which has gone up by Sh15 per litre, will see prices soar. What we are also left to wonder is how this change will impact the East African Community (EAC) harmonisation of excise taxes.

The other EAC member states have a single regime — either specific or ad valorem. Although this is effective as a revenue and policy protective measure for the Government, introducing it now may make harmonisation more complex.

The excise duty on wine has also been increased to Sh80 per litre, or 40 per cent of the RSP (Recommended Selling Price), whichever is higher, from Sh70 per litre or 35 per cent.

The reliance on alcoholic beverages to generate revenue has had a negative impact on the industry, not forgetting the already negative effects of the Alcoholic Drinks Control Act.

By raising the taxes and in turn the price of alcohol, we could well see drinkers turn to illegal substitutes.

Taxation on cigarettes has been the centre of debate for several years, with the key players in the industry disagreeing on the structure to be adopted by the Government. In 2008, the Minister introduced a hybrid regime of taxation of cigarettes, based on both retail selling price or product characteristics.

This was later changed by the Finance Act 2010 to be based on only the retail selling price.

The Minister has now proposed to harmonise the regime for cigarettes at Sh1,200 per mille, or 35 per cent of the RSP to reduce incentives for substitution among different brands. However, what we are yet to see is if this change will increase the price of cigarettes.

It is said that nothing is certain but death and taxes, therefore drinkers’ and smokers’ indulgences just became a tad more expensive.

The writer is a manager with Deloitte Kenya.