Treasury spoils the party with new alcohol taxes

Alcoholic beverage makers were last week frantically lobbying to reverse new tax measures they say will result in an increase in prices and possible loss of jobs.

East African Breweries Ltd officials met with Prime Minister Raila Odinga in a last-ditch effort to convince the government to shelve the measures. But sources said they were unsuccessful.

Prices of spirits and beer are expected go up, making this festive season one of the most expensive in recent history.

The industry is one of the largest taxpayers in Kenya, having dominated the field until entry of Safaricom, which regularly makes it a soft target for a struggling Treasury.

On Thursday, Kenya Revenue Authority, in a newspaper notice, reminded the firms to pay the new taxes on spirits, a shocker for an industry that has been waiting for feedback from Treasury on the Sh280 a litre excise tax that represents a huge escalation from Sh80 for certain categories of interest to the giant brewer.

Apparently, EABL has been distilling spirits and selling them in the belief that these tax measures would be reversed.

The second largest distillery, Keroche Industries, say they have not operated their plant since former Finance minister Amos Kimunya instituted the measures they contended targeted their downmarket segment. In a word, they have scrapped the spirits business in favour of their new brewery producing the Summit brand.

“You now don’t need a distillery to market wines and spirits in Kenya. You only require an office and a distribution network,” explained Keroche Breweries managing director Tabitha Karanja. According to both players, it is now more economical to import spirits and repackage them as other countries levy lower tax on raw spirit.

“This rate became effective on June 13, 2008, with the publication of the Finance Bill 2008 whose amended contents have now been confirmed through legal notice number 156,” said KRA in a reminder in the dailies this week. The tax amounts to Sh7 for every one per cent alcohol adding up to Sh280 for the common 40 per cent alcohol beverage offerings.

For Breweries, who operate distiller UDV, it is a double whammy of beer and spirits taxation. In the last budget, the non-malt beer excise went up.

On Budget Day, Treasury indicated the applicable rate was Sh36, which then represented a 33 per cent hike. But through recent amendments in Parliament, this was quietly amended upward to Sh45 per litre.

Healthy alternatives

The first increase translated into a Sh5 price rise for every bottle of beer. So does the second one, meaning the supposedly low-income segment products, initially meant to offer healthy alternatives, are now priced quite above the affordable.

Products affected are Citizen Special, Allsops and President Special. According to an EABL price list, Citizen Special will subsequently cost Sh45, Allsops Sh60, President Special Sh45 and the largely barley-based Pilsner Sh75.

The fully malt-based lagers are not affected. Except for President Special — introduced recently apparently to cash in on the Obama mania — the others were Sh10 below the current price but immediately rose by Sh5 on Budget Day following the initial tax raise.

“We are risking killing the industry and returning to the era of illicit liquor,” said EABL corporate communications manager Ken Kariuki.

Recommended retail price of locally distilled spirits will simultaneously shoot up. The 750ml Gilbeys Dry Gin, which used to cost Sh760, will sell at Sh970. Smirnoff, one of EABL’s top market brands, will rise from Sh730 to Sh940.

The more affordable Kenya Cane will go for Sh675, up from Sh465. The price of Bond 7 escalates from Sh730 to Sh940. The more up-market Three Barrels will cost Sh1,300, up from Sh1,090.