Alcohol: Treasury’s cash cow staggers from Covid-19 effects

Alcohol: Treasury’s cash cow staggers from Covid-19 effects

To understand how the industry has been affected by the pandemic, it is key to look at the performance of EABL. [Courtesy] Kenya has one of the highest excise tax rates on alcohol, commonly known as “sin tax,” in East Africa.

But amid a persistent coronavirus pandemic that has forced a reduction of legal drinking hours, it is not clear what measures the government will take to protect its key revenue source.

Alcohol maker East African Breweries Ltd (EABL) has already warned of a looming increase in excise duty of between five and 10 per cent in line with inflation.

“The Kenya excise regime is a lot more aggressive than that of Tanzania and Uganda,” said EABL in its 2020 annual report. READ MORE

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“We expect the Kenya government to increase the excise rates in line with 5-10 per cent inflation rate while Tanzania held the prior year excise rates.”

For many years, Kenyans would eagerly wait for the Budget reading to know whether their favourite beer or spirit was set for a price increase. Alcohol firms would also be keenly monitoring anticipated tax hikes.

But the alcohol industry has been hard hit by the pandemic. Bars and entertainment joints remained shut or scaled-down opening hours for the past year. Consumer purchasing power has also gone down.

Whether people are drinking less or more during the pandemic period is another debate altogether.

Sin tax is one of the oldest levies worldwide imposed on certain products viewed as harmful to people’s health and a luxury.

Kenya Revenue Authority lists goods such as tobacco, beer, wines and spirits, soft drinks such as juices, soda and other non-alcoholic beverages, bottled water, sugar confectioneries and chocolates among those that attract excise duty.Amana Capital Chief Executive Reginald Kadzutu says excise duty is pegged on production and government would still make money even when consumption is low.“Because excise is on production, not selling, as long as they (alcohol makers) produce or manufacture the government makes its money,” he told The Standard .But there is value-added tax (VAT) too, which is charged when a customer buys the product.“Yes, VAT would be affected but is it significant? People might not be drinking in bars but are still buying alcohol from the supermarkets,” Mr Kadzutu said.To understand how the industry has been affected by the pandemic, it is key to look […]

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