KINUTHIA: The changing tide of excise tax in Kenya

An excise tax can be defined as a levy that is applied selectively on particular goods and services.

Excise tax is payable on production or supply of a service and to domestic output or imported products. The tax is paid by the manufacturer or service provider but is borne by the end consumer as part of the cost of the excisable product or service.

Excise tax is imposed for a variety of reasons including the ability to raise substantial revenue for government at relatively low administrative costs. Excise tax is raised on a few commodities or services that tend to have a low price elasticity of demand and are produced by a few large producers.

Excise tax is also imposed to curb usage of certain products which are considered harmful to people’s health, for example, excess consumption of alcohol and cigarettes.

Application of excise tax aims at improving the vertical equity of the tax system through levying excise tax on luxuries consumed mainly by high-income earners and spending the levied tax on employment-generating and poverty alleviation programmes, which benefit low-income groups.

The Excise Duty Bill, 2015 proposes to simplify the application of Excise Duty in Kenya. The Bill, when passed into law, will repeal the CandE Act and align the application of Excise Duty to the East African Community Customs Management Act.

The key proposals in this Bill include introduction of a blanket excise tax on a vehicle’s age hence replacing the current applicable rate 20 per cent of the estimated value of the car.

Imported vehicles will suffer excise tax at the rates of Sh200,000 and Sh150,000 for those more three years and below three years of age respectively while motorcycles will be subject to excise tax at Sh10,000 per unit.

Cigarettes, which are currently taxable at the higher of Sh1,200 per 1,000 sticks (mille) or 35 per cent of the retail sales price, will be subject to excise tax of Sh2,500 per mille. Excise tax of Sh100 per litre will apply for beer, cider and other fermented and spirituous beverages whose alcoholic strength is below 10 per cent up from the current rate of the higher amount between Sh70 per litre and 50 per cent of the ex-factory price.

Wines, including fortified ones, will be subject to excise tax of Sh150 per litre, while spirits and spirits liqueurs whose alcohol content is above 10 per cent will be taxed at the rate of Sh175 per litre.

Juices, water and other non-alcoholic beverages will be subject to excise tax of Sh10 per litre up from the current rate of seven per cent of the ex-factory selling price. Plastic shopping bags will also suffer an excise tax of Sh120 per kilogramme.

Finally, the definition of fees subject to excise tax has been amended to exclude interest or return on loan and to insurance premiums.

As we await the passing of the Excise Duty Bill, 2015 to law, one wonders whether a separate Excise Tax Act will simplify the application of excise duty or this is another move aimed at bridging the national budget revenue gap.

The writer is a Manager, Tax Department, at KPMG Kenya