The Treasury’s decision to implement a massive increase in the fees for excise tax stamps is a slap in the face of the overburdened Kenyan taxpayer.
Despite protests and appeals from producers and consumers, these increases of up to 300 percent are already pushing up the shop prices of fruit juices, cosmetics, alcohol and cigarettes.
This latest unwelcome addition to the soaring cost of living throws a harsh spotlight on the expensive but ineffective Excisable Goods Management System (EGMS).
And news that the Kenyan Revenue Authority (KRA) has issued a fresh notice for a competitive tender to run the EGMS solution has revived the controversy over its decade-long deal.
It is now imperative that the government issue a full and transparent account of the deal to the public, whose support is ultimately needed if President William Ruto is to succeed in his stated aim of raising Sh3 trillion in tax revenue in the 2023–2024 fiscal year and Sh4 trillion over the medium term through tax administrative and policy changes.
Before the fee hike, Kenyans were already paying some of the highest prices for stamps in the world. As of March 1, they’re even more expensive.
The price Kenyans pay for excise stamps becomes even more questionable when one considers the initial intention of the pricing for the stamp was solely for administrative purposes.
However, with each amendment of the regulations, there have been concerted efforts to increase the basis for the pricing.
The EGMS was introduced in 2013 with the stated intention of curbing the illicit trade in excisable goods.
But it has patently failed to achieve this objective. An estimated one in every five products sold in Kenya is counterfeit and the Kenyan Association of Manufacturers (KAM) has reported that the market is flooded with fake excise stamps.
The Anti-Counterfeit Authority (ACA) estimates the value of illicit trade has soared to Sh1 trillion this year. Nearly half of the alcohol consumed in Kenya is illicit, with tax evaded on 44 percent of drinks, according to the World Health Organization.
That results in an annual loss to the fiscus of a staggering Sh78 billion.
Dramatic excise increases on tobacco products have been accompanied by a surge in sales of tax-evading cigarettes, which are counterfeit, trafficked from abroad, or both.
An estimated one in four cigarettes sold in Kenya is now illicit and paying no tax. The latest rise in the price of excise stamps will inevitably fuel this illicit trade, thereby reducing revenue even further.
