Alcohol makers oppose increased tax rates on spirits

The Alcoholic Beverage Association of Kenya (Abak) has protested the 67 per cent excise tax hike proposed in the National Treasury’s Medium-Term Revenue Strategy, saying it will cripple the spirits market and aggravate the illicit alcohol menace currently bedeviling the industry.

According to an analysis by the East African Community (EAC) tax policy sub-committee, the tax proposals backed by the International Monetary Fund (IMF) seek to raise the minimum excise rate based on litres of pure alcohol (LPA) from the current Sh356.40 to Sh596.

Abak is proposing a retention of the excise tax rates adding that increasing excise tax on spirits will worsen an already dire situation, with the proliferation of illicit alcoholic brands in the market.

A recent report by Euromonitor indicates that illicit alcohol comprises 59 per cent of the total alcohol consumed in Kenya, one of the highest in the world, as consumers facing constrained disposable income turn to cheaper, unregulated alcohol.

“Retaining the rate of excise will result to increase in an average growth in excise revenue of 4.45 per cent year on year from spirits depending on excise changes to other alcohol beverage categories,” says Abak in its proposal to Treasury.

It says multiple rounds of excise tax increases have cut government revenue from alcoholic beverage industry not demonstrating a policy formulation problem but also encouraging illicit alcohol, which the government is currently fighting.

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Kenya raised excise tax on spirits by 20 per cent in July last year and a further 6.3 per cent the following October.

These increases followed separate hikes in 2021, significantly denting consumer wallets and turning them into illicit alcohol, Abak says.

The association says policy reviews should be sensitive to regional trade trends especially dumping of contraband alcoholic beverage products on account of lower prices in Uganda and Tanzania.

Uganda and Tanzania charge an equivalent of Sh99.70 and Sh260 respectively compared to Kenya’s Sh356.42 per litre.

“This creates market distortion that is encouraging contraband spirits coming from Uganda and Tanzania,” Abak says.

The association says industry data shows that tax increases for alcoholic beverages do not automatically raise government revenue.