We hope consumers will not have to bear the burden of excise tax
Times Tower, the headquarters of the Kenya Revenue Authority, along Haile Selassie Avenue in Nairobi. PHOTO | SALATON NJAU | NATION MEDIA GROUP
What you need to know:
A lot of work has to be done to educate consumers and secure their buy-in on the need to participate in product quality verification through use of smartphone application.
Slowing down the new system’s implementation is the right decision to allow wider, deeper consultation.
The Kenya Revenue Authority (KRA) has been implementing new excise duty stamps through the excisable goods management system for beer, mineral water, juices, and soft drinks.
The stamps, which were rolled out in 2013 and initially focused on tobacco products, wines, and spirits, are now being expanded to other beverages such as tobacco, alcohol, and ready-to-drink beverages.
The mechanics of the new system, now embroiled in controversy, are quite simple. The system is designed such that details of each excise stamp appended on a product at the point of manufacture are captured at the time of printing and then tracked along the supply chain. This way, the KRA has an insight into a manufacturer’s inventory and is able to identify the point(s) of revenue loss in case the stamps are lost or stolen. Each stamp also has a special security colour and bar code to beat counterfeiters.
The new stamps bear a quick response code that will enable distributors, retailers, and consumers to authenticate the legitimacy of the products using a smartphone. The KRA believes that this will greatly reduce illicit trade and seal revenue loss loopholes. Through the smartphone application, the KRA aims to empower manufacturers, distributors, retailers, and consumers with the ability to verify and trace products.
Kenya is not the only country to adopt an excise stamp system. The United States of America, Turkey, and Brazil have successfully implemented it. Because of the sheer magnitude, Kenyan institutions rolling it out need to consult widely with industry players and experts so that the system can be seen as value addition to the manufacturing process rather than a punitive, unreasonable measure.
STEEP COST
Fully implementing the new system will come at a steep cost to the manufacturers. First is modifying existing production equipment to be compatible with the system and second is the stamp price of Sh1.50 for every unit produced. These additional costs are sure to be passed on to consumers by way of higher product prices, rendering them uncompetitive in a market that is price-sensitive. Furthermore, these are seen as fixed costs for the producer and businesses prefer to have as few such costs as possible.
Industry players under the auspices of the Kenya Private Sector Alliance recently sought to get the National Assembly’s Public Investments Committee to annul the system’s implementation, claiming that there had not been sufficient consultation, inappropriateness of the system for low-priced products, and lack of justification for collecting stamp fees at Sh1.50 per product unit.
The players contend that any cost of tax administration borne by the manufacturer while implementing the system should be passed on in price increases. They also insist that implementing the new system portends serious operational and investment challenges, including high installation costs, lack of locally available technical capacity to operate the system, and long downtimes that average five hours in a week. The question is, why should consumers bear the brunt of a tax administrative measure? The solution should not be painful to both the manufacturer and the consumer.
The Public Investments Committee has directed National Treasury officials to place the implementation of the system on hold until it finalises its investigations.
Although it is important for the KRA and the National Treasury to implement the new system, it is critical to find a balance so that it does not unnecessarily increase the cost of doing business for manufacturers.
In addition, a lot of work has to be done to educate consumers and secure their buy-in on the need to participate in product quality verification through the use of the smartphone application.
Slowing down the new system’s implementation is the right decision to allow wider, deeper consultation. We can only hope that consumers will not have to bear the burden of the government’s determination to increase excise tax collection.
George Maina is head of tax at Rodl and Partner.
