Lobby rejects IMF-backed changes on alcohol tax

Drunk man

ABAK says the adoption of the proposal would equate to a 67 percent excise tax hike.

Photo credit: Pool

The Alcoholic Beverage Association of Kenya (ABAK) has rejected the review of excise duty on alcoholic beverages by percentage of alcohol content per liter, an IMF-backed reset.

The lobby said the reset which has been hinted at through the draft Medium Term Revenue Strategy (MTRS) will cripple the spirits markets with spirits featuring the highest levels of alcohol content per unit.

The International Monetary Fund has supported the determination of minimum excise rates for mandatory excise products where excise duty on alcohol has been proposed to range between Sh901.20 and Sh1501.70 ($6-$10) per liter of 100 percent alcohol.

ABAK says the adoption of the proposal would equate to a 67 percent excise tax hike on spirits whose alcohol content rises above 40 percent.

Given price differentials, the lobby says higher spirits costs in Kenya could breed the dumping of spirit beverages from the region.

“This creates market distortion that is encouraging contraband spirits coming from Uganda and Tanzania. Further market distortion is brought about by the fact that Uganda and Tanzania both have preferential excise rates for alcohol manufactured from using locally sourced raw materials,” ABAK noted.

In submissions made to the National Treasury as part of recommendations on the proposed altering of taxation under MTRS, ABAK has recommended the retention of current excise rates on alcoholic beverages noting the hold would still lead to an average growth in excise revenue.

In the draft MTRS, the National Treasury indicated plans to increase taxation on alcoholic beverages after the sector was spared from higher taxation earlier this year.

“The government will increase excise duty on spirits and other higher alcohol content products to discourage their consumption, as they pose higher health risks. This will be informed by quantitative analysis to determine the optimal tax rate that will be applicable to each alcoholic product,” the exchequer noted.

Currently, the National Treasury says taxation on alcoholic products is based on various criteria including consumer behavior, the value of the product, volume of consumption, and alcohol content.

At present, excise duty on spirits of undenatured ethyl alcohol, spirit liqueurs, and other spirituous beverages of alcohol strength exceeding six percent attracts excise duty at Sh356.42 per liter.

The East African Community tax policy and tax administration sub-committee of the Committee on Fiscal Affairs noted in June that it had asked member States to undertake internal consultations on the proposed rate even after noting the recommendation would allow for simplicity and predictability.

“This rate would not require differentiating between beverage types, would not be affected by the different VAT rates in the region, support neutrality in the alcohol beverage sector, and allow for simplicity and predictability in the taxation of alcohol,” the EAC committee noted in its June report.

At the maximum recommendation of Sh1501.70 ($10) per liter of 100 percent alcohol, a spirit beverage with 40 percent alcohol content would attract duty at Sh600.68 ($4).