The prices of fuel, alcohol, cigarettes and motorcycles are set to rise as the Kenya Revenue Authority (KRA) moves to effect a 5.17 percent annual inflation tax adjustment on excise duty charged on the products.
The tax increase promises more pain for consumers who are already feeling the pinch of higher cost of basic food items following the failure of the long rains season.
Implementation of the inflation tax adjustment, which was first implemented last year after being held in suspension for three years, is set to start any time with the KRA having already sent a gazette notice to the Government Printer for publication.
The law stipulates that the KRA should make the adjustment at the beginning of the financial year, which in this case was on Monday.
“I believe the notice is now with the Government Printer. The adjustment rate is 5.17 percent,” said KRA deputy commissioner for corporate policy Maurice Oray yesterday.
Treasury Secretary Henry Rotich is targeting a Sh37 billion increase from new taxes out of the overall tax projection of Sh1.8 trillion that KRA is expected to collect this financial year.
Last year’s inflation adjustment was pegged at 5.2 percent, but the taxman did not make a uniform adjustment across all excisable items. Fruit juice, bottled water and filter-less cigarettes were adjusted at lower rates of five, four and 5.17 percent respectively, while others such as beer and spirits were subjected to the full adjustment.
In a notice dated June 13, 2019, the KRA told manufacturers and importers of excisable goods that the adjustment would be effective from July 1. Last year, the adjustment came into effect on August 1.
Going by the maximum 5.17 percent adjustment for this year, excise on super petrol will go up from Sh19,895 per 1,000 litres to Sh20,923.57, translating to a Sh1.02 per litre increase at the pump.
The excise on diesel and kerosene will go up from Sh10,305 per 1,000 litres to Sh10,837.77, translating to a Sh0.53 increase per litre.
The government did not effect the inflation adjustment on fuel last year, which came shortly after introduction of value added tax on petroleum products.
“This year, I expect fuel will not escape…probably the reason they did not adjust it last year was because of the big fight around VAT that was effective September 2018. It is going to be more broadbased this year so it will have greater impact,” said Clive Akora, a tax partner at consultancy firm KPMG Kenya.
He added that the delay in gazetting the adjustment since July 1 will result in lost revenue for the government, which cannot backdate the foregone tax.
The excise tax increase on motorcycles (motorcycle ambulances and locally assembled bikes are exempted) will go up from Sh10,520 to Sh11,063 this year.
The excise on a litre of beer, which was in 2018 adjusted upwards from Sh100 to Sh105.20, is set to go up further to Sh110.64, potentially raising the price of a half-litre bottle by Sh2.72.
Wines and spirits, which were previously charged excise at Sh157.80 and Sh210.40 per litre respectively, will now be levied Sh165.96 and Sh221.28.
The tax on a litre of fruit juice will go up from Sh10.5 to Sh11.04, while that of a litre of bottled water rises from Sh5.20 to Sh5.46.
Filtered cigarettes in the meantime will see their excise rise from Sh2,630 to Sh2,766 per mille, while the non-filter type will be levied Sh1,991, up from Sh1,893.
Consumers of the tobacco products, wines and spirits are also in line for another excise hit if proposals in Mr Rotich’s Finance Bill go through, where he is proposing a 15 percent hike in the tax on these products.
Cigarette manufacturer BAT Kenya, whose products are in line for a double price increase, said that the 15 percent excise increase will hurt the intention of the inflation adjustment that was meant to bring predictability in tax increases.
“Regulatory predictability is critical for the success of our business as it impacts on our ability to plan forward. We are also concerned that the dramatic increase in excise rates proposed in the 2019/2020 Finance Bill will exacerbate the already high levels of illicit cigarette trade,” BAT Kenya told the Business Daily yesterday.
In his budget speech last month, Mr Rotich justified the 15 percent increase by saying that the inflation adjustment was not adequate to cover for the declining excise revenue, which has declined from approximately three percent of GDP in 2003/04 to about two percent in 2017/18.