Alcohol manufacturers protest advance excise duty, want it halted

ABAK Secretary Eric Kiniti with the Chairman Eric Githua during media briefing on the proposed Excise Duty on February 14, 2023. [David Gichuru, Standard]

Alcohol manufacturers have opposed the move by the government to force them to pay excise duty in advance, saying it will only spur the production of illicit alcohol in Kenya.

The Alcoholic Beverages Association of Kenya (ABAK) said compelling legal alcohol manufacturers to pay excise duty within 24 hours upon removal of goods from the stockroom will punish innocent players due to failures in managing illicit alcohol in Kenya. They noted that while the proposal, which was not taken through public participation and only inserted in the Finance Bill by the National Assembly's Finance Committee, was meant to prevent the trade of illicit alcohol, it is more likely to end up promoting it.

ABAK Chairman Eric Githua said the introduction of the provision via the Finance Bill was unnecessary as the current model, where manufacturers remit the tax after the reconciliation of sales, is working. Excise duty is a consumption tax that needs to be charged at the point of consumption. In the alcohol industry, the product passes through a value chain comprising distributors and outlets before it is consumed.

"Our members have remained compliant in remitting excise duty, playing their part in building Kenya's economy even in the current tough economic times. Implementing the advance payment effectively is a counterproductive, unperceptive move that will hurt legal manufacturers debilitatingly and benefit illicit alcohol dealers who do not pay taxes, anyway," said Mr Githua.

The proposal was picked up by the Finance Committee after a submission by the Illicit Alcohol Prevention Taskforce. ABAK argued the proposal ought to have been subjected to public participation and the views of industry players sought as it demands that they make major changes to their ways of working yet it was not in the original Finance Bill.

"You do not stop errant alcoholic beverage dealers by making it harder for legal manufacturers. The government should be doing all it can to unearth the source and movement of ethanol and the eventual making of this harmful alcohol," said Githua. "So far, it is evident that the government's efforts at curbing illicit alcohol as it continues to lose Sh71 billion annually as established by a recent study by Euromonitor."

Since excise duty is a consumption tax, manufacturers are merely collection agents for the final consumers of the product.

Review contracts

ABAK argued that with the taxes already remitted in advance, this will negate the entire objective of levying excise tax as manufacturers will be incurring a cost that should be incurred by consumers.

If the proposal is enacted, manufacturers will be required to review the contracts that they have with their distribution networks, including outlets such as bars and restaurants, to require upfront payment on all orders to sustain compliance by alcoholic manufacturers.

According to the 2022 Economic Survey by the Kenya National Bureau of Statistics, the Government collected Sh44.7 billion from locally manufactured beer, wines, and spirits in 2021.

An extrapolation of this amount by factoring in inflation at 6.3 per cent gives an estimated total amount of Sh47.5 billion from locally manufactured beer, wines, and spirits in 2022.