The Treasury yesterday confirmed that excise duty will next month be adjusted for inflation as provided for in last year’s Finance Bill, making it a hidden source of tax pain that the minister, Henry Rotich, chose to say little about on Wednesday.
Mr Rotich, the Treasury Secretary, largely steered clear of the provision that is expected to be the biggest source of pain for consumers every year and in the long term — leaving the impression that his budget was mwananchi-friendly.
Tax experts said adjusting the tax rate for excisable goods would lead to a general rise in the cost of basic services and commodities such as mobile phone airtime, fruit juices, mineral water and shopping bags, even as it adds billions to the taxman’s coffers.
The Excise Duty Act, which came into force last December, provides for annual review of the levy based on the average monthly inflation rate for the preceding financial year.
That means this year’s adjustment will be based on the average inflation rate for the period between July 2015 and June 2016.
The average rate of inflation for the past 11 months is 6.5 per cent, a reality that has already been factored into the cost of living for ordinary Kenyans but will once again be loaded onto consumer prices and ultimately form the base for next year’s revision.
Mr Rotich yesterday confirmed that the measure would apply starting July 1.
“I mentioned in my budget speech yesterday that the normal adjustments in excise duty would take effect on July 1. That is in line with the law that was passed last year. It is now up to the Kenya Revenue Authority (KRA) to publish the new rates as I outlined in the budget,” he said.
Motorcycles, food supplements, jet fuel, diesel oil, fuel oil, tobacco products and alcoholic beverages, which are listed as excisable goods, will also be subject to the tax adjustment.
The move comes despite recent calls by producers of excisable goods that the inflation adjustment be postponed, citing its enactment late last year which left the market little time to absorb its impact.
The expectation is that prices of goods affected by the excise duty will go up in line with the inflation adjustment.
The price increment would begin on the factory floors, with manufacturers factoring in the higher cost of raw materials in the products before passing on the same to the consumer in the form of higher prices.
Wealthier Kenyans importing motor vehicles are, however, going to be spared the pain of inflationary adjustment after the minister removed the specific rate of excise duty and introduced an ad-valorem rate of 20 per cent based on the value of the vehicle.
Credit: Business Daily