Mastermind’s war with KRA stalls production

Cigarette manufacturer Mastermind Tobacco has temporarily stopped producing for the domestic market pending the resolution of its long-running excise tax licence row with the Kenya Revenue Authority (KRA).

Mastermind is among scores of companies that failed to secure the KRA’s excise tax licences and was shut down last week.

“We have not been producing this week (last week) except for the export market after KRA ordered us to stop,” said an employee on Wednesday.

He said the tax row had forced the company to only produce for the export market as it awaits issuance of the excise tax licence.

Only 159 local manufacturers and 174 importers had excise tax licences by November 20 and had the green light to deal in excisable goods.

The list of excisable products includes beer, opaque beer, potable spirits and wines, ethyl alcohol, tobacco and tobacco products, polythene bags, juices and other non-alcoholic beverages, soft drinks (sodas), cosmetics and bottled water.

The exclusion of Mastermind leaves British American Tobacco (BAT) as the only player in Kenya’s tobacco manufacturing market.

Josh Kirimania, the director of corporate affairs at Mastermind Tobacco, did not respond to enquiries over the reported suspension of sales in the domestic market.

Push for compliance

The KRA said it would not back down from its push for full compliance with the excise duty law and urged firms to meet the licensing requirements to avoid inconvenience.

“KRA has taken enforcement action against several non-compliant firms in Nairobi, Mombasa, Kisumu and Eldoret. Specifically, we have also managed to seal manufacturing complexes that are not compliant,” the Commissioner for Domestic Taxes, Alice Owuor, said.

“Such sealed factories are not allowed to produce any excisable product for local sale. For such factories, further surveillance efforts are maintained to ensure strict adherence.”

Ms Owuor said the KRA had also seized non-excise-compliant products on sale in the local market in various towns.

“On this score, all local retailers, have been put on notice to avoid sourcing or stocking excisable products from non-compliant manufacturers or importers,” the official said.

Spectre International and Sierra beer brand maker Ozzbecco are also among the large firms that the KRA said had failed to secure excise tax licences, putting them in danger of being shut down. The Kisumu-based Spectre International manufactures ethanol.

Keroche Breweries is still missing from the list but the company has previously said that it has a court order barring the KRA from interfering with its operations.

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.

The law bars manufacturers or retail chains from releasing products into the market without an excise licence.

“Holding of stock is not illegal. Release of excisable products into the local market or offering the same for sale, however, is illegal. For this reason, our focus is on market surveillance and organisational compliance,” Ms Owuor said.

Under Section 116 (B) (3) of the Customs and Excise Act, no person shall import, distribute, offer for sale or be in possession of any excisable goods without the authority of the Commissioner. Any person who contravenes the above sections shall be liable to a fine and the subject goods shall be seized and destroyed at the offenders’ cost.

“The authority, does not intend to go slow on the execution of its mandate and the relevant enforcement actions will continue to be taken where necessary,” Ms Owuor added.

Jobs at risk

As the standoff drags on, more non-compliant manufacturers are likely to cut back on their operations, placing thousands of jobs at risk.

The industry lobby group, the Kenya Association of Manufacturers (KAM), recently warned that the standoff over excise licences placed thousands of jobs at risk and blamed the KRA for not acting fast on pending applications by most of its members.

KAM chief executive Phyllis Wakiaga said on Friday discussions had begun with the KRA to ensure the smooth issuing of excise tax licences for 2016.

“Many of our members have been registered so far. As a matter of fact, KRA was meeting with some of them this morning (Friday),in particular soft drinks and juices companies to look at licensing for next year,” Ms Wakiaga told the Business Daily.

“So next year we are optimistic that we will have smoothened out the issues that arose this year.”