The government took a huge tax hit between April and June as bars and other entertainment venues were shut to contain the spread of the coronavirus disease.
Data from the Treasury shows the taxman lost Sh16.8 billion in excise taxes, commonly referred to as sin taxes as they are levied on products like beer, cigarettes and spirits.
As Covid-19 ravaged the country, the government was forced to curtail Kenya’s vibrant entertainment scene, a catalyst for the consumption of alcoholic drinks and smoking. And it cost State coffers.
Further, the move to waive fees on mobile banking denied the government another critical source of excise taxes.
READ MORE
Hard work doesn't pay anymore due to high taxes
Reconsider proposed VAT on aviation services
Revealed: How the police used tactics to suppress Gen Z protests
The latest data from the Treasury shows that in the fourth quarter of the 2019-20 financial year, the Exchequer received Sh35.7 billion in excise duty, a drop from Sh52.5 billion collected over a similar period last year.
The consumption of alcohol was impacted negatively by social distancing rules, as well as restrictions on social gatherings, such as weddings and parties.
KRA noted that domestic excise duty recorded a decline of 6.4 per cent in the financial year that ended in June, a dip from an average growth of 4.3 per cent recorded between July last year and this February.
“This performance is mainly attributed to the effects of the Covid-19 pandemic, which contributed to the decline of production of excisable products like cigarettes, spirits, keg beer and non-keg beer,” the taxman said in a statement.
Alcohol sold
The pandemic also resulted in mass layoffs, which had a detrimental effect on how much beer was consumed. For instance, the volume of alcohol sold by East African Breweries Ltd (EABL) went down by almost 30 per cent in the second half of the its 2019-20 financial calendar.
EABL, the region’s largest brewer that is majority owned by UK-based Diageo, made a net profit of Sh7 billion in the 12 months to June this year, compared to Sh11.5 billion in profit the previous financial year.
Its storerooms bulged with unsold stock worth Sh11 billion.
“Across the markets, we have tracked changes in consumer behaviour and repurposed our execution plans in trade to continue serving our consumers,” said EABL Group Chief Executive Andrew Cowan.
The brewer said it had partnered with logistics and e-commerce firms to survive the Covid-19 scourge.
Other major alcoholic manufacturers include Naivasha-based Keroche, which was forced to lay off workers as business got tough.
In a year, 622 million litres of alcoholic beverages are produced, translating into consumption of approximately 12 litres of alcohol per person.
Effective June 30, manufacturers paid excise duty of Sh189 per litre for wines and other spirits with an alcoholic strength below six per cent, while one litre of beer attracted Sh110 in excise duty.
For spirits like whisky with an alcoholic strength above six per cent, manufactures paid Sh253 per litre.
These tax rates are adjusted annually depending on the changes in the cost of living - the more expensive products in the economy get, the higher the duty charged.
Pubs, Entertainment and Restaurants Association of Kenya (Perak) Chairperson Alice Opee said out of Sh1 trillion its members earn, about 45 per cent comes from alcoholic sales.
“It is hard running a secretariat because those members who you are working with have basically closed, especially bars and clubs,” she said.
Opee added that some Perak members have resorted to opening only on Fridays, Saturdays and Sundays as there is hardly any business on other days.
Further, the association’s membership has dropped from around 2,000 at the end of last year to a current 800.
Financial transactions
And in March, the government put in place measures to cushion consumers from the negative effects of the pandemic by easing the costs of financial transactions, a move that has also denied the taxman critical excise revenue.
The Central Bank of Kenya (CBK) struck a deal with banks and telecoms providers, which saw charges scrapped on moving money from bank accounts into mobile money wallets, and fees waived on sending Sh1,000 or less via mobile phone.
In the 2018-19 financial year, the latest period during which a breakdown on revenues on excisable goods and services is available, the government collected about Sh27.8 billion in excise duty from beer alone, and another Sh13.6 billion from wines and spirits.
It received Sh27.5 billion from financial transactions and Sh28.6 billion from airtime.
