The Treasury plans major tax breaks for manufacturers using a top grade of ethanol, predominantly used in the production of premium alcoholic beverages, cosmetics, and pharmaceuticals, raising hopes of lower processing costs and boosting the competitiveness of the locally made products.
National Treasury Cabinet Secretary John Mbadi has proposed to reduce the excise duty charged on the premium ethanol known as undenatured extra neutral alcohol (ENA) from Sh500 per litre to Sh80 per litre.
“Mr Speaker, in the Finance Act 2025, the excise duty rate for undenatured Extra Neutral Alcohol supplied to licensed manufacturers of spirituous beverages was set at Sh500 per litre. To support manufacturers in this sector, the Bill proposes to reduce the applicable excise duty rate to Sh80 per litre,” he told Parliament when he read his budget statement for the 2026/2027 fiscal year.
“In addition, the Bill proposes amendments to clarify that this rate is applicable to locally purchased and imported undenatured Extra Neutral Alcohol supplied to licensed manufacturers.”
Extra Neutral Alcohol is the primary ingredient used in the manufacture of spirits such as vodka, gin, whisky and other distilled alcoholic drinks. ENA is a highly purified ethanol containing at least 96 percent alcohol by volume. It is also used in the cosmetics and personal care industry, pharmaceuticals, food and flavourings among other sectors.
Alcoholic drinks manufacturers have in the past argued that high taxation on ENA increases manufacturing costs and ultimately pushes up retail prices for consumers. The Treasury is also seeking to remove ambiguity in the tax regime by clarifying that the reduced duty rate will apply to both locally purchased and imported undenatured extra neutral alcohol supplied to licensed manufacturers.
The amendment is expected to create a level playing field for manufacturers who source their raw materials from different markets while ensuring consistency in the administration of excise taxes.
“Mr Speaker, to promote fairness and consistency in the taxation of similar products, the Bill proposes to harmonise excise duty treatment within the alcoholic beverages sector by removing the preferential excise duty rate of Sh10 per centilitre of pure alcohol for alcoholic beverages manufactured by small independent brewers,” added Mr Mbadi.
