Posted on September, 25, 2018 at 10:25 am
By ELIZABETH KIVUVA
The high level of excise taxes on manufactured or imported goods into the country is likely to drive up illicit trade.
Kenya Investment Authority managing director Moses Kihara said high excise duty will force traders and consumers to switch to alternatives that have less or no excise authorisations.
“When taxes are high, people find ways to evade that by seeking alternatives goods that don’t cost them much,” Kihara said.
The excise duty changes are contained in the Finance Bill 2018, in which for instance water manufacturers will be forced to pay Sh0.2 on Excisable Goods Management System (EGMS) duty and additional Sh0.5 stamp duty.
The bill that was signed into law yesterday by President Uhuru Kenyatta is now warning for a possible increase on the trade, contradicting the ongoing efforts to fight the parallel economy.
According to Kebs, these high levels of excise taxes coupled with price difference of illicit and non-illicit goods are among the key reasons for circulation of smuggled and uncustomed goods into the country from neighbouring states with low-tax regimes.
“We have cases where traders illegally smuggle parallel goods of soda and bottled water from countries such as Tanzania to make more profits,” Kebs acting managing director Bernand Nguyo said during presentation on fight against illicit trade to the senate on September 18.
The EGMS system enables an excise stamp to be appended on product at manufacturing site are and then tracked along the supply chain.
Kenya Revenue Authority had deferred the implementation of EGMS on juices, soda and other non-alcoholic beverages and cosmetics in July that was to commence on 1st August 2018.
The excise duty is also meant to generate Sh3.6 billion additional revenue annually.
Kebs has warned that the trade will lead to loss of market share or even closure of industries producing the similar goods extending to reduction in tax revenue.
Nguyo said the existing coordinated control border patrol by multiple state agencies will ensure no goods come through the wrong points of entry.
“We are not relenting on this war against illicit trade. We are prepared to ensure uncustomed goods don’t get into the country,” Nguyo said.
According to Kebs, estimating the economic size of illicit trade is difficult, but says the trade has increased 7 times faster than legal trade since 1990s.
The IMF and World Bank estimates that illicit trade represents 15 to 20 per cent of global GDP.
Source: The Star