• Thursday, 30 November 2023
London Distillers Warns Latest Tax Policies Could Lead To Sector Collapse

London Distillers Warns Latest Tax Policies Could Lead To Sector Collapse

London Distillers Kenya Limited Chairman Mohan Galot has expressed full support for the concerns raised by Kenya Breweries over the latest tax policies which he said could lead to sector collapse.

Galot on Friday said the requirement to pay excise duty upfront and the increased taxation on spirits is making it impossible to continue manufacturing and serving the market

"The requirement to pay taxes in advance has put a huge strain on the business working capital and its ability to sustain the business operations. This has led to a decline in the capacity utilisation as a result of lack of adequate raw materials and ability to consolidate all the factors of production," Galot said.

The Chairman said the future of the alcohol spirits sector is bleak and is bound to collapse if this policy requirement is not reviewed. 

He said the situation has been exacerbated by the fact that molasses in the country are illegally exported to neighbouring countries, distilled, packaged and comes back through informal routes flooding. 

Galot said this has made it difficult to compete in the market. 

Further, Galot noted that these illegal products have steadily been increasing and now stand at approximately 60% of the market.

"As the Chairman of London Distillers (K) Ltd, I wish to congratulate the Kenya Revenue Authority management for the concerted effort and commitment to address this issue and the market surveillance team are always on the ground to break the cartels involved," he said. 

As a company, Galot said they have formally raised the matter with the concerned ministry to review its policy on the export of molasses which has created a massive shortage in the country for the last six months. 

In a recent publication in local dailies, it was reported that the prices of molasses have risen by 10 times as a result of illegal exports, creating undue shortage in the local market. 

Galot said the government had intervened and suspended the export of molasses in February which in his view was well intended and would have significantly stabilised prices of the commodity in the country. 

However, the ban due to unknown reasons save for the intense lobbying by the exporters, was lifted after one month. 

"A ton of molasses which was selling at approximately Ksh.5,000 in July last year now sells for approximately Ksh.50,000," Galot said. 

"Our prayers to concerned authorities is to totally ban the exportation to avoid further decline of the spirits sector which may eventually collapse if no immediate action is taken." 

Galot said London Distillers, which has been operational for the last 37 years, among other distillers have been forced to operate at extremely low capacity due to a lack of molasses.

He said this has affected a number of distributors and stockiest who sell their brands.

"As a company, we believe that this issue can be resolved promptly and eventually deliver the growth and investment plans we had set for ourselves," he said. 

Galot noted that there is a general rapid decline in volumes and revenues in spirits sales, with the Kenya Revenue Authority noting the delivery of spirits volume declined by 20.7 per cent in the quarter ended September 2023. 

London Distillers Managing Director Avin Galot mentioned that he too is deeply concerned and worried about the dire consequences the sector now faces due to the policies. 

Alvin said the future of thousands of investors and employees in the value chain is bleak. 

"The excise duty on spirits with strength exceeding 6 per cent shot from Ksh.278.70 per litre to Ksh.356.30 per litre in 2022 forcing consumers to switch to illicit and counterfeit products and that has definitely been the reason for the sector's downward trend on volumes and value performance," Alvin said. 

He said the unaffordability of spirits has been hit hard not just by the taxation policies but the increase in prices of raw materials, Energy and Labour costs. 

"The requirement that manufacturers make Excise duty payment within 24 hours has crushed the net working capital structure and capacity of the sector and is not sustainable," he said. 

ABAK Vice Chairman P. S. Mann also voiced his concerns on the matter adding he fully appreciates the commitment and surveillance efforts Kenya Revenue Authority has been doing to streamline the sector.

He however believes that if the government is keen to make more revenue in this sector, then it has to review on a priority basis its approach to the taxation requirements of the sector.

"How can spirits manufacturer pay Excise Duty within 24 hours even before the goods leave the warehouse, where would a company get money to sustain this operation?"  Mann posed

He said whereas there was an objective to sort out certain gaps in revenue collection this approach cannot be the solution as many companies will soon collapse, causing many Kenyans to lose their jobs and the government will also lose the much-needed taxes to improve the lives of the citizens.