How new tax regime is set to hurt your spending power


You are expected to dig deeper into your pocket to buy basic commodities such as bottled water and fruit juices as the government’s taxation spree continues.

Buyers of boda bodas and second-hand cars will also have to pay more according to new Excise Duty Bill 2015 that was adopted by Parliament.

The effects of the new taxes have been rumbling since June when National Treasury CS Henry Rotich read the 2015/16 Sh1.2 trillion spending plan.


In late August, the Treasury reiterated its intention to seek more cash through excise duties in a brief sent to the International Monetary Fund.

According to this note, Mr Rotich said the government was determined to collect an extra Sh63.64 billion which is equal to one per cent of the Gross Domestic Product through a new wave of taxes.

Nonetheless, the Excise Duty Act 2015, which was adopted by Parliament is expected to raise Sh28.44 billion.

Earlier on, President Uhuru Kenyatta had failed to sign the Bill, arguing that it would complicate revenue collection and renege on the government’s efforts to raise an additional Sh25 billion from excisable goods.


However, financial and tax experts have raised the red flag, warning that the new tax regime is a step in the wrong direction.

Financial markets analyst and CEO of Rich Management Aly Khan Satchu says while excise taxes are often seen as low hanging fruits for the government to raise money, the new rates will not be the silver bullet that can solve the government needs.

“There is a price versus tax correlation, and for a soft economy like Kenya, these taxes are likely to mount pressure on consumption,” he told Money.

Mr Satchu adds that the excise duty might have been vindicated had the government proven its case to the taxpayers.

“We don’t see the proof that we need more taxes, and instead of following the current excise duty route to raise more money, it would be better for the government to focus on cutting expenditure,” says Mr Satchu.

Mr Nikhil Hira, a tax partner at Deloitte East Africa concurs, adding that Kenya’s expenditure is too high. Mr Hira further notes that increasing taxes on second-hand cars, boda bodas, bottled water, cigarettes and beer is likely to be counter-productive.

Research analyst at Relic Capital Robert Ochieng’ says the government would have done better by sealing tax loopholes rather than increase the burden on the poor.


For instance, according to the Excise Duty Bill 2015, buyers of second-hand cars will now have to pay Sh200,000 excise tax on all units over three years old from the date of first registration.

For car buyers importing vehicles less than three years old, they will part with a Sh150,000 tax bill. According to Mr Ochieng’, this duty will be replacing the current 20 per cent excise tax which is calculated based on a vehicle’s value that is charged alongside customs and VAT.

“For vehicles, Sh200,000 is the minimum tax which means that even importing a vehicle such as a low value Toyota Vitz, you may have to part with Sh200,000 tax,” he says, adding that this will be an increment of at least Sh148,276 on the excise duty second-hand car buyers have been paying to import the same model.


Ironically, owners of top-of-the range vehicles will now be spared at least Sh400,000 in excise duty.

For instance, a buyer importing a Toyota Landcruiser who would have paid Sh642,000 in duty previously will now only part with Sh200,000 tax.

According to Ms Suzette Kerubo, a marketer at car importing firm, SBT Japan Nairobi office, some vehicles will see their duty jump significantly.

She singles out second-hand Nissan Bluebird Sylphy to illustrate: “If the Bill is not signed, the duty for a Nissan Bluebird will remain the same at an estimated Sh310,433. If the Bill is signed, this will shoot up to around Sh364,493,” she says.

On average, Nissan Bluebird Sylphy currently retails at Sh930,000 for a 2008 model.


Mr Ochieng’ adds that consumers of beer and cigarettes are equally set to grapple with hard times.

“Cigarettes will now be charged Sh2,500 per mille while beers will be charged Sh100 per litre as earlier proposed in the original Bill.

Cigarettes are charged on the higher of Sh1,200 per mille, which contains 1,000 sticks, and 35 per cent of the retail sale price,” he says.

With the excise tax on beer rising by Sh30 per litre to Sh100, consumers will have to pay a minimum of Sh140 for a 500ml bottle which is a Sh20 increment from the current average price of Sh120 per half-a-litre bottle.


The prices of fruit juices, bottled water as well as soda are also expected to jump by up to 40 per cent while the cost of boda bodas is expected to shoot up following enactment of a flat Sh10,000 fee on all motorbikes.

In the same vein, vendors of polythene bags will find the going tough as the new tax will see a kilo of plastic bags cost Sh120 in taxes up from the 50 per cent of the ex-factory price.

Mr Ochieng adds that the Bill could create a tug of war, with additional taxes being collected in some products while on the other hand the demand for certain products taking a nose dive.

“Some items such as cigarettes and alcohol have inelastic demand, which means that their demand won’t change despite hike in prices and as a result, more taxes will be collected,” he notes.

However, Mr Ochieng’ is quick to note that other items such as second-hand motor vehicles have elastic demand, which means that their volumes will suffer sharp declines, with second-hand cars expected to tumble by over 50 per cent.


For instance, by June this year, according to the Kenya Bureau of Standards, Kenya was estimated to be importing an average of 7,000 second-hand cars per month.

Currently, according to the Kenya Auto Bazaar Association, the number of vehicle imports has fallen to about 4,000 units from a peak of 12,000 units.

Last year, the government collected Sh18.99 billion from excise duty charged on beer.

This was a 13 per cent increase from 2013 when Sh16.8 billion was earned from duty on beer. In the same breathe, Sh10.28 billion was collected from cigarettes last year and Sh245.5 million from bottled water.

Alarmingly, despite the increasing level of corruption in government procurement, non-essential expenditure, and wastage, the tax pool has been falling short of the set targets.

For instance, between July and September, the Kenya Revenue Authority collected Sh167.6 billion in domestic taxes.

This was Sh18.3 billion short of the Sh186 billion targeted in the period under review.

According to Mr Rotich, the government is looking to collect over Sh1.3 trillion in the current fiscal year.

However, the government has been accused of creating avenues for multinationals and wealthy individuals to evade taxes.

Lobby group, Tax Justice Network, says the government is losing over Sh112 billion annually from tax incentives and exemptions to multinationals.