Increase in beer tax could bring back Kumi-Kumi
Before the introduction of East African Breweries’ sorghum-based keg beer, Kenyans were used to news reports of Kumi-Kumi, an illegal liquor brewed in the country from sorghum, maize, or millet.
The illegal brews rocked havoc on people’s lives causing permanent blindness and in extreme cases death.
The introduction of low-priced keg beer was revolutionary in moving a significant number of revelers – from city estates to rural quarters – away from the toxic, illegal drinks.
However, tax policy to capture this new segment of consumers has wiped out some of the gains and is now risking a reversal.
Kenyan consumers are staring at a further price hike if the proposals in the Finance Bill 2022 sail through.
The tax changes will see excise tax on beer increase by 45 percent and on spirits by 55 percent in just one fiscal year.
The Finance Bill also proposes to increase excise duty on bottles by 25 percent as well as a new 15 percent excise duty on alcohol advertising.
Excise Duty Act, through the Finance Bill 2022 also empowers the taxman to exclude some products from annual inflation tax adjustment based on prevailing economic conditions giving the Kenya Revenue Authority (KRA) power to determine hikes in the sector.
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Excise duties or sin taxes inevitably increase consumer prices of the taxed commodities, thereby lowering consumer demand for the products.
Kenya’s sin tax is pushing beer and spirit prices out of price elasticity which will see consumers stagger to the available alternatives including Kumi-Kumi.
Consumers already saddled with a high cost of living stemming from energy prices, food, and imports are already grappling with fast declining purchasing power.
Inflation hit a seven-month high of 6.47 percent in April from 5.56 percent in February even as new taxes are expected to bring a fresh round of price increases if the Finance Bill is passed into law.
Inflationary pressures have also eroded the country’s real wage by negative 3.83 percent last year, down from negative 0.59 percent in 2020.
Coupled with salary cuts, a freeze in pay, and the slowest increase in pay in over a decade, consumers in Kenya look stretched to breaking point.
The annual economic survey by the Kenya National Bureau of Statistics (KNBS) shows private companies raised average monthly pay by 2.24 percent last year, the slowest pace in 11 years.
Raising taxes on beer and spirits beyond a certain point will result in abandoning conventional alcohol for the illicit brew market offerings.
There has already been a proliferation of illegal third-generation alcohol, which could blow out as unscrupulous retailers turn to fakes owing to runaway manufacturer prices that are out of reach for many consumers.
MPs should throw out all ill-thought-out measures that are likely to undermine post-Covid 19 recoveries in the productive and wealth-creating sectors of our economy while creating a new health crisis driven by fake alcohol.
