Roll out of excise stamps to non-alcoholic drinks is beneficial to the economy

BLOG 13/06/2018

In 2013, the Kenya Revenue Authority (KRA) rolled out an ambitious project dubbed Excisable Goods Management System (EGMS), with a view to beef up the fight against illicit trade and protect members of the public from unregulated products in the excisable goods sector.

Implementation of EGMS was also a pivotal tool in sealing the then existing perforations on the revenue pipeline which denied the government its fair share of revenue from excisable goods.

EGMS was first implemented on tobacco, wines and spirits which have since recorded an increase in revenue collection. This is a clear indication that implementation of the system has lived true to its form.

Over the past years, excise stamps have only been applicable to tobacco, wines and spirits. However, for the first time, the roll out of excise stamps to cover non-alcoholic drinks such as bottled water, juice and cosmetics is in the pipeline and will take effect on 1st November this year.

Initially, manufacturers concerned had registered their reservations to the intended use of excise stamps on these products, arguing that it will increase the cost of doing business which might force them to pass on the cost to the end consumer.

Following these concerns, KRA held several consultative meetings with representative organisations, individual manufacturers, importers and taxpayers, the outcome of which was a review of the fee structure of the stamps. To this end, the National Treasury gazetted a new graduated stamp fee corresponding to the price elasticity of the various categories of exercisable goods.

One key factor that informed the decision to extend use of excise stamps to the non-alcoholic sector is to address concerned raised by the tax authority and other stakeholders on the proliferation of illicit products that posed harm to consumers. Statistically speaking, revenue performance in this sector is estimated at less than 40 per cent for bottled water and 50 per cent for other non-alcoholic beverages.

Conventionally, when illicit products, irrespective of the sector, find their way into the market, it creates a ripple effect in unhealthy completion, corroding the market to the core. Use of excise stamps on these products will therefore go a long way in protecting consumers.

Apart from posing a health risk to consumers, illicit products are also a major blow in the market of similar but genuine products as they barricade the way for genuine producers to get the rightful share of income they deserve from the market. In the long-run, genuine producers? market share is eroded leading to revenue loss to the government. The ripple effect will be felt by wananchi who are beneficiaries of the critical services financed by the revenue collected.

Nevertheless, the fight against illicit trade in excisable goods will only succeed with the support of the public who are called upon to verify products before trading in them or consuming the same. To support this initiative, KRA has developed EGMS mobile application known as Soma Label, for the fight against illicit products.

In fact, implementation of the excise stamps on non-alcoholic beverages will empower distributors and end users of these products to verify the authenticity of their favourite drinks before paying for them using the EGMS smartphone application. The application, just like in the alcohol sector, will go a long way in bringing the empowerment to fight counterfeits to the door-step of the end user of the said products. The system will also come in handy to law enforcement agencies as it will enable them to easily identify and interdict illicit products in the market.

The introduction of exercise stamps on non-alcoholic beverages and cosmetics is expected to bring mutual benefits to the tax authority on one hand and the industry and consumers on the other. It is therefore critical that all players in this sector drum up support for the implementation of the system.

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