Fred Aminga @faminga
Kenyans will dig deeper into their pockets after Kenya Revenue Authority (KRA) tabled a memorandum in the National Assembly seeking to raise duty on excisable goods.
KRA wants excise duty increased by 5.15 per cent in a move to cushion the government revenue against inflation. If approved, the duty will increase cost of goods including super petrol, diesel, kerosene, beer, spirits, cigarettes, bottled water and fruit juices by the same margin as it will be passed to consumers.
“Parliament enacted Section 10 of the Excise Duty Act and Paragraph 2 of the First Schedule of the Act. These provisions provide for adjustment of the rates at the beginning of the financial year to protect the value of duty from erosion by inflation,” KRA Commissioner General Githii Mburu said in the memorandum to legislators requesting them to adopt its contents.
He said for the 2018/19 financial year (July 1, 2018 to June 30, 2019) the average rate of inflation was determined as 5.15 per cent by Kenya National Bureau of Statistics, which is the corresponding increment of the excise duty.
According to the memorandum tabled on Tuesday, excise duty on super petrol will be adjusted from Sh19.89 per litre to Sh20.91 while that of diesel and Kerosene will increase from Sh10.30 to Sh10.83.
Duty for fruit juices will increase from Sh10.50 to 11.04 per litre while bottled water Sh5.47 per litre from Sh5.20. Motorcycles Sh11,061.00 per unit up from Sh10,520.00.
For beer, duty will increase from Sh105.20 to Sh110.62 per litre, Wines from Sh157.80 to Sh165.93 per litre, Spirits from Sh210.40 to Sh221.24 per litre. Retailers in Kenya always round up the prices of commodities and this means that the prices could even be higher.
For motorists, fuel cost have consistently increased in the last four months meaning the reviewed duty will increase pump prices.
The excise duty adjustment date which was set to take effect on July 1 but the Finance Bill (2019) had suggested the date be moved to October 1.
Mburu told MPs excise duty adjustment was necessary annually because cost of goods and services go up due to dynamics within and outside the economy.
Experts warned that the knock-on effect of the adjustment will include escalation in the cost of transport, food, travel, generally cost of doing business and inflation.
Kenya Association of Manufacturers chief executive Phyllis Wakiaga said while Excise Duty Act (2015) provides that these adjustments will increase the prices of excisable products, a cost which will be passed on to consumers.She told People Daily that since the economy is not growing, such an inflation factor will be detrimental to consumers as it will diminish their purchasing power.
“This may lead to an increase in illicit goods in the market as demand for affordable alternatives increases,” she said.
Consumers Federation of Kenya Secretary-General Stephen Mutoro said the inflation adjustment”is ill-timed for targeting end user of fuel, which costs are already high. This means further inflation beckons, given the direct impact of increase in pump prices on various other sectors.
“What is in question is how such an adjustment affects other existing taxes. Details from KRA remain scanty,” he said. He also warned fuel adulteration will go up. Francis Kamau partner at Ernst Young and also a tax expert said using inflation to hike excise duty will only spike further inflation.
“Inflation will affect the consumer purchasing power forcing them to partake alternative goods in a move set to encourage illicit goods,” he said.
An economist at Amana Capital Reginald Kadzutu said the cost of locally manufactured goods will go up, making them less competitive.
Raphael Matu, a consulting economist said while the adjustment is expected to ensure government gets value for revenue collected, it will also see cost of products increase.
However, he said the government being among the major consumers of products making duty adjustment is a delicate balancing act.
The law allows the Treasury Cabinet Secretary to vary rates of excise duty by an amount not exceeding 10 per cent.