Brewer faults State tax policies, urges review to cut illicit drinks

KBL Managing Director Mark Ocitti. [Wilberforce Okwiri, Standard]

Kenya Breweries Ltd (KBL) has urged the government to rethink its tax policy, terming it a “nuisance and cumbersome.” 

KBL Managing Director Mark Ocitti said the provision for advance excise duty, for example, has complicated matters for businesses. 

“It is a nuisance and cumbersome. It is a burden on our cash flow and a burden on our overheads because we have had to create a whole new back office,”  he said, adding that smaller businesses that lack the capacity to do so may not survive.

The move has also forced manufacturers to review their contracts with distribution networks for upfront payment to sustain compliance.

The brewer further noted that the latest upward review of taxes on spirits could reverse gains made in eliminating illicit brews in the country besides reducing tax revenues for the government. 

In the financial year ending June 2022, KBL’s parent company East African Breweries Ltd (EABL) recorded a significant drop of 21 per cent in its profits, with revenue from Kenya - its biggest market - dropping by four per cent as Kenyans adjusted to multiple tax increases.

The Kenya Revenue Authority (KRA) excise tax collections from spirits dropped by 20.7 per cent in the first quarter of this year.

This points to a shift in spending patterns as consumers downgrade to illicit brews, endangering their lives and denying government tax revenues.

In the Finance Bill 2022, there was no increase in the excise duty on alcoholic beverages.

While acknowledging this, Mr Ocitti said increasing taxes does not necessarily translate into more revenues for the Exchequer.

Recent figures from the taxman suggest a downward trend in tax revenues from legal spirits even as those from beer rose.

The spirits revenue dip for the first time in years prompted the industry to call for a tax review.

According to a recent industry report from Euromonitor, nearly two-thirds of alcohol being consumed in Kenya is illicit.

“This means that far more people are resorting to the bad stuff that not only endangers their lives but also denies the Exchequer due revenues. Spirits have faced double-digit annual excise tax increases since 2015, deepening an affordability problem that has now been worsened by runaway input costs such as ethanol – up 61 per cent during our last financial year, among others,” said Ocitti.

KRA reported that excise duty collected domestically grew by 22.1 per cent to Sh20.4 billion in the first quarter of the current fiscal year.

Excise duty collected from beer increased by 7.3 per cent, soft drinks by 21.2 per cent, bottled water by 7.8 per cent and cosmetics by 13.3 per cent.