Proposal to triple Excisable Goods Management System stamps unfair

Times Tower

Times Tower, Kenya Revenue Authority headquarters in Nairobi. The proposed Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023 by the government that seek to increase the cost of EGMS stamps for cigarettes, beer, sodas, juices and cosmetics by 267 per cent is imprudent as it is unfair.

Photo credit: File | Nation Media Group

What you need to know:

  • Its implication is that manufacturers of the excisable goods will pass the cost to the consumers, leading to substantial price increases and, hence, reduced consumption.
  • That means SICPA, the Swiss firm contracted to implement EGMS, will earn more revenue while the Kenya Revenue Authority (KRA) will collect reduced revenue since the tax is based on volumes sold. 
  • That will, therefore, transfer more revenue to a foreign firm at the expense of the government and local manufacturers.

The proposed Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023 by the government that seek to increase the cost of EGMS stamps for cigarettes, beer, sodas, juices and cosmetics by 267 per cent is imprudent as it is unfair.

Its implication is that manufacturers of the excisable goods will pass the cost to the consumers, leading to substantial price increases and, hence, reduced consumption.

That means SICPA, the Swiss firm contracted to implement EGMS, will earn more revenue while the Kenya Revenue Authority (KRA) will collect reduced revenue since the tax is based on volumes sold. 

That will, therefore, transfer more revenue to a foreign firm at the expense of the government and local manufacturers.

Subdued employment

The reduced sales will result in subdued employment as companies render some of their staff redundant and, therefore, less income tax to the government.

Counterfeits and imports will increase due to the high cost of local goods. That will result in further depreciation of the shilling as the balance of payments gets skewed towards imports. Depreciation of the shilling will lead to the appreciation of foreign currency-denominated loans that the government has taken out. 

This will result in increased payments of the principal loans and interest by the government to foreign institutions such as the World Bank, IMF and China Exim Bank.

Lower sales volumes will also mean reduced VAT, import duty, corporation tax, IDF and reduced RDL collections by the taxman. That will further stress the government as it will not get enough funds to finance its recurrent and development budget. That will lead to more borrowing, most likely more expensive.

The manufacturing sector is the engine of economic development. The government has announced an ambitious plan to increase the sector’s contribution to gross domestic product (GDP) from 7.2 per cent to 20 per cent by 2030. However, dearer EGMS stamps will only end up hurting the sector more, even reducing the GDP contribution.

The limping economy and growing population is dependent on the manufacturing sector to provide jobs for the people and spur economic growth. If it died, then the economy will stagnate, the unemployment rate will shoot up and the crime rate will spike, making the country not viable for doing business. 

Before the government increases the cost of EGMS stamps, let it first look at the issue holistically and factor in the merits and demerits of the action.

Stephen Mutuguta, Kiambu