Why KRA's Sh17bn system has failed beer lovers and Treasury

Friday December 14 2018

COUNTERFEIT

Fake alcohol destroyed in Nairobi on June 2, 2018. KRA has failed to fully utilise a multi-billion-shilling system to stop their entry into the local market and seal tax-evasion loopholes. PHOTO | COURTESY 

NICHOLAS KOMU
By NICHOLAS KOMU
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KRA recorded a big drop in taxes from excisable goods such as beer, spirits and cigarettes for the year ended June.

The taxman recorded a 1.81 per cent drop and so bad was the situation by the end of December 2017 that KRA Commissioner-General John Njiraini described the decline as “unusual”.

SH17 BILLION

However, the government has a key tool in its arsenal to fight against counterfeits and augment excise revenue: the Sh17-billion Excisable Goods Management System, which is designed to protect KRA from tax loss as well as protect consumers from counterfeit liquor and tobacco that have proliferated the market.

The system’s design features tracking of products by incorporation into the production chain of manufacturers as well as authentication features verifiable by consumers.

By use of excise stamps, the system which is fitted in the production chain, allows the taxman to track how much alcohol each liquor firm produces.

The stamps are applied and activated on products during production and the information relayed to KRA.

In an exclusive interview with the Nation, a SICPA representative recently described the system as watertight.

He said that it can be made even more successful through more vigorous enforcement efforts.

FEATURES

“The EGMS is meant to protect the government from tax loss by keeping counterfeit products out of the market," the SICPA representative said.

"It is designed with a series of security features that make it water tight but without enforcement results cannot be achieved.”

KRA in September 2016 introduced new generation excise stamps for wines, spirits, tobacco, and beer whose features allow distributors to verify genuine products using smartphones through an app dubbed “Soma Label”.

The excise stamps supplied by SICPA bear a series of security features from scannable codes to use of colour shifting inks, which the authority was trained to use.

“This series of features makes it hard to duplicate. Counterfeiters may try to duplicate features, but they have not been successful due to the technologies used and the complexity of the design. For trained enforcers, it is very easy to detect a fake,” the SICPA representative said.

UPGRADE

For enforcement officials, the security firm also supplied a large number of specialised mobile devices that scan specific codes on the products.

The use of these devices could be expanded further with augmented enforcement teams.

Earlier this year, KRA launched a sensitisation drive across 35 major towns to educate stakeholders, including police and administrators, on how to use the Soma Label App, which was mainly designed for consumer verification at the end of the production chain.

SICPA believes that KRA and other agencies could ramp up the use of the specialised mobile devices and enhance public awareness of the Soma Label app in order to increase the impact of the system.

“This is a very good system and with the right kind of vigour to enforce and by educating the public it will save the country so much tax lost in counterfeiting,” the SICPA official said.

The firm is also currently designing an upgrade of the system set to be released next year.

Several attempts by the Nation to get a comment from KRA directly and through their PR and media relations firm via emails were not successful as the mails were no replied.