Kenya's reevaluation of tax remittance requirements for alcoholic beverage manufacturers comes amidst significant industry challenges and financial impacts. The proposed extension of the remittance period from 24 hours to five working days reflects a response to widespread criticism and concerns over falling profits, particularly voiced by major companies like East African Breweries Plc (EABL).
The Finance Bill 2024, presented by Treasury Cabinet Secretary Njuguna Ndung’u in the National Assembly, seeks to amend Section 36 of the Excise Act. This amendment would replace the previous requirement of remitting taxes within 24 hours of product removal from warehouses with a more lenient five-day period. If approved, this measure is expected to provide relief to brewers and spirits distillers, allowing them more time to manage their cash flows and remit taxes after making sales.
EABL, the largest brewer in the region, has been vocal about the adverse effects of daily tax payments. Their Chief Financial Officer, Risper Ohanga, highlighted the company's need for expensive short-term borrowing to comply with the excise regime under the previous policy. This requirement contributed significantly to EABL's 22.1% drop in half-year profits ending December 2023.
In addition to the changes in tax remittance timelines, the Finance Bill 2024 proposes a fundamental shift in excise duty calculation for alcoholic beverages. Instead of a flat excise rate for beer, wine, and spirits, the bill suggests calculating excise based on alcohol by volume (ABV). This shift is likely to impact prices for consumers, particularly for spirits with ABV ranging from 37 to 45 percent. Excise duties per litre under this new system are set to increase, with higher ABV spirits facing higher duties.
For example, spirits with an ABV of 37 to 45 percent will see excise duties per litre ranging from Kes592 to Kes720. This change will also affect the pricing of commonly sold 750ml bottles of spirits, with excise duties per bottle ranging from Kes444 to Kes540 based on the ABV.
These proposed changes in tax remittance timelines and excise duty calculation methods aim to address the financial burden and operational challenges faced by industry players under the previous tax regime. The amendments are part of broader efforts to create a more conducive environment for the alcoholic beverage sector in Kenya.
