The Kenya Revenue Authority (KRA) will now use Kenya shillings instead of euros to pay the Swiss-based excise duty stamps supplier Sicpa CA to shield itself from exchange rate losses.
The change of settlement currency was reached in the financial year ended June 2024 after a Sh3.62 billion debt forced KRA to extend the expiry of the contract with Sicpa beyond the August 2024 that had been signed earlier.
KRA says in the annual report it also renegotiated for a new pricing model, signalling that the two may have agreed on a lower figure than the initial one that had led to the accumulation of the debt.
“In order to mitigate the accumulation of further debt, the Authority has negotiated with the supplier on a revised pricing model and settlement of bills in local currency,” says KRA in the latest annual report.
Local currency payments will shield KRA from foreign currency exchange rate losses while a lower pricing model will rescue it from what it describes as an “imbalanced” pricing model where the stamp prices for non-alcoholic beverages were set below the actual cost.
The imbalanced pricing under Excisable Goods Management System (EGMS) forced KRA into absorbing the costs associated with this pricing structure leading to accumulation of debts which stood at Sh3.62 billion at the end of June 2024 compared with Sh4.79 billion a year earlier.
“The payable for the supply of the stamps is attributable to the disproportionate pricing model for the non-alcoholic beverages, which are priced below the cost of stamps, the depreciation of the Kenya shilling against the euro and the disproportionate volume mix between non-alcoholic and alcoholic beverages,” says KRA.
KRA had initiated the process of getting the EGMS from the Swiss firm in a move it said would have significantly reduced the price of the stamps and stopped accumulation of further debt. However, the Swiss firm declined to hand over the process, telling KRA that the handover will only happen when the debt is fully settled.
The standoff forced KRA to extend the contract past its deadline date, but with renegotiated terms, even as the National Treasury dithered on providing money for the settlement of the debt.
KRA discloses that it appealed to the Treasury for the provision of funds to settle the debt and an allocation of Sh2 billion was provided in the financial year 2022/2023 supplementary budget with a further commitment to provide Sh2.47 billion in the year ended June 2024. However, the Treasury failed to disburse the money.
“The amounts have not been disbursed and the Authority is following up with the National Treasury for the settlement,” notes KRA.
The one year extension of the Sicpa contract started on August 14 last year and is expected to end this year, meaning that Treasury faces a race against time to provide the cash if KRA is to end the deal that started in May 2020.
