Tobacco firm says new stamp duty will choke profits

BAT says new tax will increase illicit trade in tobacco products. [Photo: File, Standard]

The Kenya Revenue Authority is locked in a battle with cigarette makers for more revenues barely two months into implementing new tax measures.

National Treasury Cabinet Secretary Henry Rotich slapped the cigarette industry with new stamp duty, increasing it from Sh1.50 per packet to Sh2.80. This took effect shortly after the budget was read in March.

The new rates may already be choking cigarette makers’ profits, with British American Tobacco (BAT) complaining that the tax is punitive as the fee has been increased by an unprecedented 87 per cent.

BAT said the tax stamps will now represent up to 60 per cent of the cost of cigarette wrapping materials, up from 15 per cent.

“The impact of this increment will be detrimental to the industry as a whole. This cost translates into Sh351 million or 26 per cent increase in BAT’s cost of doing business, which is unsustainable in an already heavily taxed industry,” the company said in an email to The Standard.

BAT has petitioned the Government to reduce the duty, claiming they were not involved in discussions on the new tax measures.

“As a key stakeholder and tax payer, BAT Kenya was not given an opportunity to comment on the change in tax stamp fees,” the firm said.

Meeting postponed

On Thursday, the Kenya Revenue Authority was summoned to Parliament to defend the new fees and explain why they did not allow for participation as enshrined in the Constitution.

The meeting with National Assembly Committee on Delegated Legislation, however, failed to materialise after MPs failed to show up.

The MPs were said to have attended party functions and asked that the meeting be postponed. The new date was not immediately made public.

The leading tobacco firm in the region claims that the tax will lead to increased illicit trade in cigarettes and further threaten the sustainability of tax revenues for the Government.

It also said the stamp duty was skewed towards cigarettes as the fee does not apply to beers.

“The retail price of most cigarette packs is aligned to the retail price of a bottle of beer (between Sh100 and Sh150), yet excise stamps for cigarettes are now charged Sh2.80 compared to beer which is charged Sh1.50 per stamp. Cigarettes are, therefore, unfairly burdened,” said BAT.

However, KRA officials say there were stakeholder consultations on the taxes and that BAT was being unfair to the taxman.

BAT says the move to increase tax stamps was not in line with the principle that should essentially only help KRA ensure tax compliance.

“We appreciate the role that excise stamps play in enhancing tax administration and compliance for businesses and Government. However, as a matter of principle, excise stamps should be tools of tax administration and not revenue generation,” said the company.