Manufacturers in push to ease tax on ethanol

Manufacturers want to push through Parliament a proposal to cut back taxes on ethanol.

Through their lobby, they fault the high excise tax for increased smuggling of ethanol across the region that has driven some firms out of business.

Excise duty in Kenya for Undernatured Extra-Neutral Alcohol is Sh200 per litre. This amount is higher compared to EAC counterparts, especially in Uganda which is at the rate of USh60 (about Sh2) while in Tanzania, it is zero. 

This has resulted in the smuggling of illicit alcohol from the two countries into Kenya making Extra-Neutral Alcohol producers and the exchequer lose. “As per the attached justification, Kibos Distillers has lost sales from 830,200 litres in November 2016 down to 296,250 litres in January 2018. This has resulted in a loss of revenue to Kenya Revenue Authority (KRA) of Sh1.2 billion,” Kenya Association of Manufacturers (KAM) said. 

The business of diverting ethanol from the export markets is becoming more daring since KRA does not tax the commodity meant for export at the same rate as local products to ensure local firms are competitive in the regional market.

The racketeers have been smuggling them back from across the border.

Spirits consignment

The Auditor General’s report on KRA last year said a beer and spirit consignment with a Sh65.4 million bond value was supposed to have been exported. However, there were no exit reports at border points, meaning they are still in Kenya.

In the Simba system, there was an attempt to put in numbers but this differed with the registers at the border posts. In particular, Sh32.5 million in excise duty may have been lost in Busia since the records at the outwards register differed with the export entries at Agro-Chemical and Food Company Ltd in Muhoroni.

The players are keeping the liquor in Kenya instead of exporting and smuggling the spirits back. KAM proposes new provisions to be introduced in the Finance Bill 2018 to reduce the excise duty from Sh200 to Sh100.

“This proposal to reduce the excise duty on undenatured ethyl alcohol, will have positive outcomes such as an increase in sales resulting in the increase in employment, investment attraction, the country will go towards meeting the increase in manufacturing as per the “Big Four” and KRA will maximise on revenue,” KAM said.

The lobby proposed a raft of changes in the revenue collecting law to prop up local manufacturing against regional competition. They said Kenya is rapidly losing its biggest market - East Africa.

Kenya’s trade balance in the East African Community declined sharply from 2012-2017, from Sh122 billion in 2012 to Sh71 billion in 2017, a 58 per cent decline.

Imports by Kenya from EAC, on the other hand, have increased almost fivefold from Sh13 billion in 2008 to Sh61 billion in 2017.