Kenya Association of Manufacturers (KAM) is alarmed by the proposed Excise Duty (Excise Goods Management System) (Amendment) Regulations, 2023, that seek to increase the rates of excise stamps for bottled water, juices and any other non-alcoholic drinks, cosmetics, alcoholic beverages, tobacco and nicotine products and export products subject to excise with effect from 1st March 2023. KAM has today (1st February 2023) engaged with Kenya Revenue Authority (KRA) and shared its feedback as follows:
The proposed increment up to levels of over 100% and beyond the current market costs of producing the stamps shall have a detrimental effect on consumers and manufacturers due to increased cost of production and the cost of finished products which will be passed on to the consumer amidst the rising cost of living.
The proposal comes barely four months after a 6.3% inflation adjustment on specific excise tax rates was effected on 1 October 2022, impacting cosmetics, confectionary, alcoholic and non-alcoholic beverages including bottled water, and tobacco and nicotine products, among other products. Three months before the inflation adjustment, there was the increase in excise taxes from 1 July 2022, by between 10% and 20% through the Finance Act, 2022. Tax predictability is essential in encouraging investments.
The EGMS stamp is a revenue assurance tool that was initiated to deter counterfeiting, ensure traceability of excisable goods along the supply chain, enable accounting to produce excisable goods manufactured or imported and facilitate any persons in the supply chain to authenticate the stamps and excisable goods. As such the proposed drastic increase in cost of stamps seeks to be a revenue collection mechanism as opposed to an assurance tool.
Meaningful consultative engagements, competitive bidding of suppliers and Joint Impact Assessment with the industry need to be conducted and, in this case, it would be on the impact of the cost of stamps to the overall cost of production. We must make cost comparison to other countries, regionally and globally, to ensure the country remains competitive. From our analysis, Kenya’s cost is amongst the highest in these regard with the price of stamp and its administrative requirements costing the same as the price of the product. This continues to make Kenya uncompetitive as an investment hub.
We are afraid that such increment to some of the most counterfeited items in Kenya will further encourage counterfeit and illicit trade. This will deny government revenue and put lives of Kenyans at risk as substandard and highly dangerous goods infiltrate the market.
Subsequently, the increment will result in reduced government revenue leading to low sales and in turn have a negative effect to other revenue streams from manufacturers such as VAT, PAYE and Income Tax among others. The ripple effects will be a downside from job creation to job losses and affect many livelihoods.
The government adopted an export-led growth strategy as part of its plan to transform the economy. At the heart of this plan is being globally competitive. The proposed costs will further make Kenyan products uncompetitive at the global market due to the high cost of compliance and unpredictable regulatory environment. This poses a great risk of suppressing the manufacturing sector’s contribution to the Gross Domestic Product (GDP) that has been shrinking over the last five years.
Predictability earns investor confidence in the country, leading to increased local and foreign investments. Sudden changes in fiscal policy and regulations divert industry’s resource allocation from productivity into meeting the costs associated with changes towards fast compliance.
We therefore urge the government to retain the current charges on the excise stamps and to finalize and implement the National Tax Policy, with a focus on enhancing certainty and predictability in the tax code.