Treasury plots 300pc stamp tax hike on alcohol, makeup

If a request by the National Treasury to increase the price of excise stamps by up to four times is accepted, consumers should prepare for a new round of price rises on wine, juices, cosmetics, and cigarettes.

According to the Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023, stamp fees for cosmetics will increase by 317 percent from 60 cents to Sh2.50, while those for fruit juices and other non-alcoholic beverages like sodas will increase by 267 percent from 60 cents to Sh2.20.

Beer bottle stamps will double in price to Sh3 from Sh1.50, while those for spirits, wines, and tobacco goods would increase by 79% to Sh5 from Sh2.80 per stamp.

Producers and importers will probably pass these higher stamp prices on to the final consumer, just like other excise taxes. This will be in addition to the recent inflation adjustment of 6.3% that took effect in October of last year and the regular rate modifications reflected in the annual budget.

The predicted 2.9 billion excise stamps that the Kenya Revenue Authority (KRA) would sell for mandatory affixing to excisable products will bring in additional billions for the Treasury. Since 2017, there hasn’t been a stamp price review till now.

The purpose of the excise stamps is to prevent counterfeiting and make it possible to follow excisable items throughout the supply chain, which aids the taxman in calculating the excise owed by importers and manufacturers.

The decision to increase stamp costs, according to tax experts, reflects pressure on the Treasury to improve tax revenues but also increases the danger of increasing use of counterfeit stamps, which is already a significant hassle for the KRA.

“The rationale is likely to be pressure from the government to collect additional revenue — we have seen KRA being given an ambitious revenue target and the government state an intention to become self-reliant against borrowing,” said Stephen Waweru, senior manager of tax services at KPMG Kenya.

“On the other hand, it might trigger more people to seek loopholes through counterfeits since under the current economic environment of high inflation few have room to pay more to government…the timing could be wrong.”

The government has an appealing target in excise duty because it is a consumption tax that affects a larger portion of the population and is challenging for consumers to evade.

When the Treasury wishes to increase taxes in the national budget, sin taxes typically offer low-hanging fruit.

For instance, beer now carries an excise tax of Sh142.44 per litre, up from Sh121.85 in the fiscal year ending in June 2021. This rise is due to an increase of Sh12.15 per litre in the June 2022 budget as well as an inflation adjustment of 6.3 percent in October.

Wine excise increased during this time from Sh208.20 to Sh243.43 per litre, while spirits excise increased during this time from Sh278.70 to Sh356.42. Fruit drinks now cost Sh14.14 per litre, up from Sh12.17 per litre of tax.

A tariff increase from 10% to 15% was imposed on the multi-billion dollar cosmetics and beauty products sector, which has experienced a growth in spas in recent years.

Imported jewellery, such as necklaces, earrings, bracelets, and rings, is also subject to a charge of 15%, up from 10% previously.

Excise tax revenue collected by the KRA in the fiscal year that ended in June 2022 totalled Sh256.3 billion, or 13 percent of the KRA’s overall revenue collection of Sh2.03 trillion

Payroll and corporate taxes each provided Sh461.8 billion and Sh416.7 billion, respectively, to the tax tally, while the value-added tax contributed Sh520.4 billion.

The KRA’s efforts to increase the proceeds from sin taxes have been stymied by the proliferation of phony excise stamps that give dishonest importers and manufacturers a significant competitive edge over law-abiding companies.

President William Ruto voiced concern that the Kenya Revenue Authority (KRA) is only moving 2.9 billion stamps with the remaining being generated by counterfeiters when he stated that the nation needs to be selling between 10 and 12 billion excise stamps annually.

The KRA has previously calculated that the local manufacturing sector’s excise duty evasion costs it up to Sh12 billion yearly.