The most significant news coming out of the latest review of the performance of the Kenya Revenue Authority (KRA) is a shortfall in the collection of excise duties during the first six months of the current fiscal year.
Coming against the backdrop of Kenya’s excessive debt and huge revenue deficit, all indications are that this funding gap will now force the tax authority to confront reports of an upsurge in fake excise stamps and also the urgent necessity to expand the rollout and enforce the use of the Excisable Goods Management System, which has been in operation since 2013.
Supported by the international technology provider SICPA, the system involves the affixing of secure excise stamps on goods at the production site, which then allows the tracing and tracking of products and monitoring of production volumes.
As expected, implementation of the system in Kenya has elicited big resistance from some industries.
No manufacturer likes a monitoring system built directly into his production line and collecting real-time production data for the tax authority.
But in terms of broad fiscal policy, the high-tech monitoring system in Kenya is beginning to enjoy support and endorsement by other tax authorities in Africa, as well as by some forward thinking taxpayers.
During a recent meeting of the Africa Tax Administration Forum (ATAF), the continental association of tax administration authorities, the EGMS received wide endorsement and acclaim by the members.
Indeed, KRA has reported that EGMS increased excise tax compliance by 45 per cent.
A report by ATAF noted that the system had proved robust at detecting counterfeit goods and preventing smuggling.
The report also found it to be adept at stamping out falsification of production volumes.
It is therefore not surprising that in the wake of the shortfall in excise tax collections, KRA is planning to put more pressure on non-compliant behaviour by expanding and enforcing the use of EGMS.
Last week, KRA announced that it will rollout a major campaign to sensitise manufacturers, retailers and distributors as well as the police and consumers to verify genuine products by using smartphones through an app dubbed ‘Soma Label’ that is part of the EGMS solution.
The use of mobile phones to scan products will go a long way in empowering consumers to identify and avoid contraband products in the market, thereby eventually eliminating them by drying up demand.
Recent trends show that excise duty is emerging as the tax with the greatest potential for sub-Saharan countries.
Excisable goods are mainly luxury goods. Excise duties are also charged as a sin tax on goods like alcohol and tobacco that are known to pose health problems to consumers.
But there are other factors and side benefits which have encouraged authorities to gradually expand the excise tax dragnet.
Not least is the fact that controls can help reduce counterfeits, fakes and fraudulent practices.
Today, the list of excisable goods and services includes juices, mineral water, soft drinks, petroleum jelly, cosmetics, mobile phones, talk time and wireless services.
Excise duty is also imposed on imported used computers, fees charged on money transfers, and banking services fees.
From a continental perspective, excise tax revenues on average account for about 1.7 per cent of GDP of member countries of the African Tax Forum, nearly one percentage point below the OECD average of 2.6 per cent of GDP.
Countries must finance public expenditures through fiscal revenues as deficit financing is no longer feasible.
Kenya must therefore strive to increase the performance of this tax category as it is clearly the tax of the future.
The best route to get there is by expanding the use of track and trace systems.
Robert Ndege is a Director at TL Message and Media