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How ‘soapy’ products saved French beauty firm Sh8m tax bill
L’Oreal East Africa convinced the Tax Appeals Tribunal that its 12 disputed products were washes, like soaps, and therefore not subject to excise duty as beauty products.
The line between face wash and soap can be blurred in the personal care industry.
But industry players need to make sure the line is clear to the Kenya Revenue Authority (KRA).
As L’Oreal East Africa, the marketing and distribution arm of French personal care giant L’Oréal S.A., has learnt, that line can mean the difference between paying more or less tax.
In a recent ruling by the Tax Appeals Tribunal, L’Oreal East Africa dodged a Sh7,888,630 tax liability after the beauty company convinced the seven-member tribunal that the 12 disputed products were washes, just like soaps, and therefore did not attract excise duty as beauty products.
The tribunal agreed that the products--including L’Oreal’s cleansers and facial washes such as CeraVe SA Smoothing Cleanser and CeraVe Acne Control Cleanser--were washes and should not have been subject to excise duty.
Unlike soaps and other detergents, cosmetic and beauty products are subject to excise duty of 15 percent and in some cases 16 percent value-added tax (VAT). Imported beauty products also attract import duty.
Soaps, or washes, only pay VAT and import duty if they are shipped from outside of the East African Community.
The seven-member tribunal faulted the KRA for reclassifying the products under a general code that includes beauty products, thereby subjecting them with both VAT and excise duty.
According to the tribunal, the active ingredient in these products, surfactants, gives them their essential character as cleaning agents, just like soap.
“The tribunal having established that the respondent (the KRA’s Commissioner of Customs & Border Control) was in err in reclassifying the appellant’s products from tariff code 3401.30.00 to tariff code 3304.99.00 equally finds that the respondent’s review decision dated 18th April 2024 was not justified in the circumstances,” reads the ruling, delivered on March 21, 2025.
The Commissioner of Customs and Border Control conducted a post clearance audit (PCA) in the five years to September 2023 and, citing non-compliance due to undervaluation of imports and royalties as well as tariff misclassification, issued a notice of demand dated February 1, 2024 for principal taxes totalling Sh409,483,062.
On March 20, 2024, L’Oreal East Africa filed an application for review. The KRA reduced the liability to Sh11,250,507, comprising incorrect royalties of Sh3,371,877 and tariff misclassification of Sh7,888,630. L’Oreal acknowledged the incorrect royalties and made payment on May 22, 2024.
However, it was aggrieved by the KRA’s review on misclassification and filed its notice of appeal dated May 29, 2024 with the tribunal.
The products in dispute include L’Oreal’s cleansers and facial washes such as CeraVe SA Smoothing Cleanser, CeraVe Acne Control Cleanser, La Roche Posay Effaclar H Iso-Biome Cleanser Crème Lavante, Garnier Even & Matte Micellar Cleansing Water and Garnier Pure Active Intensive Charcoal 3 in 1 Wash.
There has been increased demand for facial care products in the Kenyan market as people become obsessed with personal grooming.
While the KRA would like to get a slice of this market, only certain cosmetics and beauty products-- including perfumes, makeup, and hair preparations-- attract 15 percent excise duty.
The KRA requires that these specified cosmetics and beauty products carry excise stamps as part of the Excisable Goods Management System (EGMS).
These stamps are intended to help the KRA track and monitor these products, ensuring tax compliance and combating counterfeiting.
However, surfactants, or organic surface-active products, do not have any skin-enhancing features.
The KRA had argued that some of the disputed products were intended for skin care and beauty purposes and should therefore have been subject to excise duty. According to the taxman, this new classification meant that L’Oréal’s products would attract excise duty at 15 percent, import duty at 35 percent, and VAT at the standard rate of 16 percent, increasing the company’s tax burden.
The cleansers, the KRA reckoned, fell under tariff code 3304.99.00, which is designated for beauty or make-up preparations and preparations for the care of the skin other than medicaments.
However, the company demonstrated to the tribunal why its cleansers were like soap. It pointed out that the cleansers contain surfactants, which have hydrophilic (water-attracting) and hydrophobic (oil-attracting) properties that allow the products to cleanse the skin effectively.
L’Oréal also cited international guidelines in its defence, noting that the World Customs Organisation (WCO) Explanatory Notes classify cleansers with surface-active agents under Chapter 34, rather than Chapter 33, which applies to skin care products that do not have a cleansing function.
The company further pointed out that similar products had been classified under HS Code 3401.30.00 in other jurisdictions, including the United States and India.
