Revenue formula welcome but ‘sin’ tax on bottled water a real damper

In the past, Market Talk highlighted the need for the Commission of Revenue Allocation (CRA) to review the allocation formula in order to reward productivity. CRA determines revenue distribution to counties in Kenya.

The current distribution is based on a formula that considers population, poverty index, basic equal share, land area and fiscal responsibility.

We argued that the formula seems to be flawed due to several aspects that seem to punish productive counties compared to less productive ones. It seems they listened.

The new allocation formula that has been rejected by governors include a productivity factor that rewards counties own revenue generation.

This is in line with the saying that whatever you focus on grows. The county governors have asked for more time to consult and understand the new method, arguing that it punishes poor counties while rewarding the rich ones. But the water and juice excise tax is not well-thought-out.

At a glance the idea of taxing bottled water at S0 per litre sounds brilliant. Drinking bottled water is one of the trends we track to understand growing middle class.

Data shows that the year-on-year bottled water sales in Kenya have grown by nine per cent. In the 90s, it could only be found in hotels and very few homes. Today, most households in the middle and upper classes buy bottled water.

The consumption is driven by safety concerns over the commodity supplied by government-owned water companies. It also rides on wellness and health consciousness.

My problem with the water tax is that it may mean that the government wants to tax a good habit.

I normally consider excise duty to be a sin tax that should apply to products that can have a healthy warning like cigarettes it is harmful in a way like soft drinks or environmental friendly like used cars.

The only sinful thing about bottled water is that those using it are giving the government water a red card I have seen Nairobi Governor Evans Kidero drink tap water to demonstrate that it is safe.

The other problem is that the tax is technology specific, it targets bottlers of water. What about those who sell in sachets, tetra packs, and other technologies that may emerge?

Maybe the law has some definitions that address that loophole. Maybe the government will use more money to increase access to clean water.

If water is life as they say, we may not be very wrong to say that this is similar to taxing condoms then allocating the Ministry of Health a good budget to aertise safe sex.

Juice tax maybe applicable since it is related to soft drinks that are also excised, though the choice of juice is also not convincing. I guess the old phrase, anything sweet is either illegal, immoral or fattening applies to qualify juice for sin tax.

The recent trend for more natural juice that has seen many farmers contracted by juice-making companies may not have been in the minds of those who came up with the tax.

Some farmers may have contracts cancelled in a similar way sorghum farmers suffered when tax on Senator Keg was increased. The nutritional benefits of such juice maybe lost in less consumption.

There are so many sins that are not taxed maybe the taxman should become more creative in targeting real sins.

The other tax trend is that the taxman deregistered so many liquor licences and then increased liquor taxes.

The fewer compliant ones will cater for the missed target. On a good note, those who spend more in good whiskies and more expensive imported cars will pay the same tax as those who spend less.

This will probably encourage hard work or even corruption. Excise tax on cosmetics was also removed, which is certainly good news for the fairer sex.

The writer is the Marketing Director of SBO Research. E-mail: bngahu@sboresearch.co.ke, Twitter @bngahu

SOURCE: BUSINESS DAILY