Resist dearer excise stamp plot
Consumers of juices, sodas, beer, spirits, cosmetics and cigarettes should brace for a fresh round of price increases if a proposal by the National Treasury to raise the cost of excise stamps by up to four times is approved by Parliament.
I oppose the proposal for the following reasons. First, the price at which the Kenya Revenue Authority (KRA) buys these stamps from the Swiss manufacturer, Sicpa, has not gone up. From the correspondence I have seen, the conversation between the parties is a new arrangement, whereby the prices of stamps will be brought down by almost 50 per cent.
Which is why I ask: If the prices at which KRA purchases these stamps are not going up, why should consumers and manufacturers of these products be made to endure higher prices and disruption of business, respectively?
Here is a bit of background. Excise tax stamps are pieces of paper that are affixed on every bottle of juice, bottled water, soda, beer, alcoholic cosmetics and tobacco products. Sold by KRA, the stamps allow the taxman to verify the authenticity of the marked products and indicate to the authority that the required excise tax has been paid. Other than banknotes, no security printed item is consumed in such high volumes in this country as excise stamps.
The excise stamp contract is a multi-billion-shilling deal that involves the printing of stamps and provision of track-and-trace technology to detect fake ones. What has been in place is a five-year framework contract that has been running since 2015 and which expired in 2021.
I have seen documents which show that, on expiry of the contract, KRA and Sicpa signed an addendum that not only sought to extend the engagement beyond the originally contracted five years but also introduce terms for the extended contract.
The reason this rather long background is pertinent is because under that new arrangement, the parties have agreed on a handover deal whereby ownership of the whole system, including the software, is to go to KRA for free. The Swiss company also agreed to halve the prices of the stamps.
Which is why I ask: Where is the pressure to increase the prices of the tax stamps coming from when we are supposed to be getting the technology for free and the stamps at half the price?
The second reason why I am against the proposal is that it is going to bring bigger problems with compliance. It is an open secret that the current system has not served us optimally. And no less an authority than President William Ruto himself has confirmed this.
Addressing this year’s Taxpayer’s Day, President Ruto wondered loudly why Kenya was selling less tax stamps than Uganda and Tanzania despite being a bigger economy. He said Uganda sells nine billion tax stamps annually, Tanzania 7.2 billion and Kenya a measly 2.9 billion.
The President estimated that, given the size of the country’s manufacturing sector, Kenya should be selling between 10 and 12 billion stamps annually.
At a separate occasion, during a high-level meeting of the Kenya Manufacturers Association, the President was even blunter: He claimed—without substantiating—that there were more fake stamps than genuine ones circulating in the country.
Which is why I ask: If the picture painted by the President is correct, should the government be even thinking about increasing the prices of the stamps in the first place? High rates of taxation inevitably result in tax evasion.
Indeed, fake stamps have become big business in Kenya due to high prices. Hardly a month passes before you read a story in the media reporting how a raid by KRA officers had intercepted thousands of rolls of counterfeit excise stamps at a warehouse in Nairobi.
Peddle fake stamps
In one incident in February 2021, newspapers reported about the confiscation of rolls of fake excise stamps of an estimated value of Sh750 million. In another similar incident, a woman suspected to be part of a criminal network said to peddle fake stamps made in China was arrested on arrival at JKIA.
What is my point? It is that, if we increase the prices of tax stamps right now, we will have incentivised the black market for fake stamps.
My third reason: Risk of damage to businesses and disruption of supply chains. Manufacturers of bottled water, juice, soda, alcohol and cigarettes are major employers in this economy.
This is a supply chain covering a wide range of players, including brewers, glass manufacturers, a network of soda bottling plants, groceries, shops, bars, restaurants, transporters and, in the case of Kenya Breweries, an agribusiness ecosystem that supports hundreds of thousands of barley, wheat and sorghum farmers.
Parliament must shoot down the proposal to increase prices of excise stamps.