The main sources of revenue to the government are Income Tax, Value Added Tax (VAT), and Excise duty, which account for 40.5%, 23.7%, and 11.9%, respectively, for the projected revenue in the financial year 2023/2024 budget.
Read more: KRA Sustains Growth in Tax Collection as Revenues Surpass the Kshs 2 Trillion Mark
The government relies on the effectiveness of the Kenya Revenue Authority (KRA) in collecting these taxes as well as increasing some of the existing taxes to meet its revenue target. Excise Duty has been increased twice in less than a year through the Finance Act 2022 in July last year and the taxman’s inflation adjustment that happened later in October of the same year.
However, the increase in the Excise duty collection for various ‘sin’ products, such as Tobacco and Beer, recorded marginal growths of 2.8% and 0.4%, respectively, in the Financial Year 2022/2023.
East African Breweries Limited (EABL) and British American Tobacco (BAT) have released their financial results for the period ended 30th June 2023, which showed the performance of the two companies was greatly affected by the decline in sales revenue.
Read more: KRA Records Growth in Custom Revenue Collected at Jomo Kenyatta International Airport
EABL sales revenue grew by a mere 1.9% to Kshs 197.6 billion from Kshs 193.9 billion as of 30th June 2022. BAT, in its half-year results, announced that its sales revenue declined by 4.0% to Kshs 21.0 billion from Kshs 21.9 billion on 30th June 2023.
The key attribution of the stagnated growth of BAT and EABL is attributable to the reduced consumer disposable income due to the tough economic environment that is characterized by elevated inflationary pressures.
Alcohol and cigarettes have been spared from tax increases for the first time in five years after the Finance Act 2023, which left out the two products from excise duty adjustments, handing manufacturers and consumers a major relief for the first time in five years.
Read more: BAT Kenya Declares an Interim Dividend of Kshs 5.0 Per Share
The freeze on taxes for the sector came on the back of intense lobbying by manufacturers who had warned that the higher taxes would result in lower revenues while leading to a spike in illicit trade. Concerns about illicit trade were supported by recent revelations from Mastermind Tobacco Kenya (MTK), which reported that up to 80.0% of products bearing the name “Supermatch” are being smuggled into Kenya from neighbouring countries. In addition, a survey conducted by BAT estimated that the country is losing up to Kshs 6.5 billion annually in taxes due to the influx of illicit cigarettes in the local market, highlighting the ongoing challenges associated with illicit trade in the sector.
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