Increase in Excise Duty
February 15, 2023
EXCISE STAMP TAX INCREASE. IS IT THE RIGHT TIME? IS IT THE RIGHT MOVE?
The Kenya Revenue Authority (KRA) proposed an increment in excise stamp fees which would take effect on March 1st 2023.
KRA hopes that this increment will enable them to meet their revenue target. But what implications will these adjustments have?
Excise Duty (sin tax) is primarily levied on products that are thought to have a negative societal impact, including alcohol, tobacco products, and luxury goods like jewelry, cosmetics, carbonated beverages, and even bottled water. Excise stamp fees, is the levy paid for the stamp used to mark such products.
Some of these changes could end up being regressive and cause more harm than benefit the overall economy as had been anticipated.
Some of the expected impacts might include:
Due to hyperinflation, the common mwananchi are currently in survival mode. This means that customers are opting for cheaper options. In this case customers will substitute these products with less expensive solutions. For example, bottled beer with locally brewed alcohol, and spirits.
There is also the option of purchasing counterfeit products, which is common for alcoholic products and cosmetics.
Although the demand for most of the products is price-elastic, there will be instances where there will be decrease in demand for these products especially where they touch the low income earners. Consumers may decide not to purchase some of these products or purchase substitutes. This will consequently affect the revenues of some of these companies’.
In instances where the price is a critical determinant to the consumer some companies may look for alternate strategies to keep their consumers. They may choose to purchase low-cost supplies of lower quality in order to maintain the same level of manufacturing costs. This will enable these companies to keep the same price for their products even after taxes.
Some companies may opt to manufacture their products from foreign countries where the overall cost of manufacturing is lower and import the finished products. This would have a negative impact on employment and standard of living in Kenya. This is due to the fact that fewer jobs would be available for Kenyans as the majority of those currently employed by these enterprises would lose their jobs, and there will be less jobs available for Kenyans. This of course would lessen the amount of tax the government earns from employment.
The government may be able to generate income from this levy, but this could have an impact on other taxes the government receives from the manufacturing companies, retailers, and other sources. Additionally, if the businesses choose to import finished items, the revenue often generated from other taxes, such as PAYE, withholding tax, and income tax, would decrease.
The government would undoubtedly be able to earn enough money if it were successful to attain its goal in the next five years.
TIMING IS EVERYTHING. Increments in taxes and levies are not always the best answer in struggling economies. The impact of excise tax might be felt more by the low income earners further reducing their ability to conserve or save their earnings and ability to spend on other basic services such as health and education.
Taxation should not be used as a means to an end. Considering some of the areas highlighted, the government might not necessarily achieve the overall targets by implementing these changes and in some instances might be counter-productive especially at this point in time.
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This information is for the purposes of general knowledge and guidance. JM Associates is not responsible for any damages arising from the use of this information. For more professional advice, kindly reach out to us on the contacts provide below.