• Saturday, 22 June 2024
Loss of jobs, revenue shortfall loom in excise stamp increase

Loss of jobs, revenue shortfall loom in excise stamp increase

Kenya Revenue Authority is staring at a potential revenue shortfall if the government proceeds to increase price of excise stamps, manufacturers and retailers have warned.

The country is expected to witness a rise in tax evasion, growth of illicit trade and low sales volume for manufacturers, retailers and importers, amid high operating costs which could see some companies lay-off staff to remain afloat.

National Treasury has proposed an increment of up to 300 per cent on the cost of excise stamps as part of the government's aggressive drive to increase its revenue collection.

The Excise Duty (Excisable Goods Management System) (Amendment) Regulations, 2023 proposes to raise the stamp fees for cosmetics from 60 cents per stamp to Sh2.50, from March 1.

Stamp fee for fruit juices and non-alcoholic beverages such as sodas will go up to Sh2.20, from 60 cents.

Those affixed on beer bottles will double, from Sh1.50 to Sh3, while those for spirits, wines and tobacco products have been proposed to go up to Sh5, from the current Sh2.80 per stamp if approved.

According to the Retail Trade Association of Kenya (RETRAK), the additional cost will be passed down to the consumers as they cannot be absorbed.

“This will result in reduced demand and a potential increase in illicit trade which will affect the viability of many small businesses,” Retrak notes.

Illicit prevalence will increase, subjecting the consumer to unregulated, tax-evaded, substandard and potentially harmful products, it notes.

No clear justification has been given for the proposed increase, the retail sector lobby group now says, noting as of today, Kenya already has the highest cost of tax stamps globally.

There should be a shift from paper to digital stamps with full track and trace capability, Retrak says.

This will reduce costs and improve compliance.

Kenyan products are currently expensive compared to manufacturers in the region, which continues to see smuggling of cheaper goods from neighbouring countries, with the taxman losing on revenue.

The tax stamps are essentially put on the product to mitigate illicit, but according to Retrak, they have proved ineffective because of a lack of sufficiently punitive measures against illicit players.

Counterfeiting of stamps has also been prevalent and  the lenient approach by government towards non-compliant traders is said to have failed to inspire confidence among manufacturers.

Instead, it has made the country unattractive to legitimate players which is against the government core agenda, as well as the Kenya economic blueprint- Vision 2030.

Overtax 

Stop Crime Kenya (StoCK) also notes Kenyan manufacturers are paying the world’s highest fees for excise tax stamps – even before the controversial price increase proposed by the National Treasury.

The discredited stamps, which are meant to combat counterfeiting and smuggling, are up to 70 times more expensive in Kenya than they are in Europe, where they offer full track-and-trace capability.

 “The exorbitant fees that Kenyans are being charged for excise stamps make it imperative that KRA addresses transparency issues,” said Stephen Mutoro, chairman of Stop Crime Kenya (StoCK).

In Europe, where stamps offer full track-and-trace capability, Sweden’s cigarette manufacturers for instance pay the equivalent of Sh36 for a pack of 1,000 stamps.

In the UK, the price is Sh95 while in Turkey the price is Sh625.

In Kenya, the price is a breath-taking Sh2,800 which is expected to rise to . Sh5,000 if the new increase is enforced on March 1.

“These fees are ultimately paid by Kenyan consumers, who will face higher prices that will exacerbate the soaring cost of living,” said Mutoro.

The government is losing over Sh153 billion tax revenue to illicit trade with Kenya recording a rise in smugling of fake ciggarettes, alcoholic drinks among other excisable goods.

 

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