Spirits maker says advance tax requirement hurting manufacturers

When bars, hotel and liquor traders met in Nairobi raising concerns over increased taxes that are hurting the sector. [Samson Wire, Standard]

Local spirits manufacturing company London Distillers Ltd has raised concerns about recent tax measures targeting the alcoholic beverages industry, saying they are killing firms in the sector.

The company said it has given its full support to similar concerns raised recently by Kenya Breweries Ltd on the requirement to pay excise duty upfront and the increased taxation on spirits.

"The requirement to pay taxes in advance has put a huge strain on the business working capital and its ability to sustain the business operations," said London Distillers Chairman Mohan Galot in a statement.

"This has led to decline in the capacity utilisation as a result of lack of adequate raw materials and ability to consolidate all the factors of production."

He said the future of the alcohol spirits sector is bleak and is bound to collapse if the policy requirement is not reviewed.

The situation has been exasperated by the fact that molasses in the country is illegally exported to neighbouring countries, distilled, packaged and comes back through informal routes, flooding the market and making it even more difficult for compliant companies to compete, he said.

"It's worthwhile to note that these illegal products have steadily been increasing and now stand at approximately 60 per cent in the market."

"I wish to congratulate the Kenya Revenue Authority management for the concerted effort and commitment to address this issue and the market surveillance teams that are always on the ground to break the cartels involved."

Recent reports said the prices of molasses have risen by up to 10 times as a result of the illegal exports and are creating shortage in the local market.

The government had intervened and suspended the export of molasses in February, which Mr Galot said would have significantly stabilised prices of the commodity.

"However, the ban due to unknown reasons save for the intense lobbying by the exporters, was lifted after one month," he said.

"A ton of molasses which was selling at approximately Sh5,000 in July last year now sells for approximately Sh50,000.

"Our prayers to concerned authorities is to totally ban the exportation to avoid further decline of the spirits sector, which may eventually collapse if no immediate action is taken.

Sales decline

There has been a general decline in volumes and revenues in spirits sales, with KRA noting the delivery of spirits volume decline by 20.7 per cent in the quarter ended September 2023.

London Distillers Managing Director Avin Galot said the excise duty on spirits with strength exceeding six per cent shot up from Sh278.70 per litre to Sh356.30 per litre in 2022, forcing consumers to switch to illicit and counterfeit products.

He said this is the reason for the sector's decline in sales and value performance.

"The unaffordability of spirits has been hit hard not just by the taxation policies but the increase in prices of the raw materials, energy and labour costs," the MD said.

"The requirement that manufacturers make excise duty payment within 24 hours has crushed the net working capital structure and capacity of the sector and is not sustainable."