Inflation Adjustment on Specific Rates of Excise Duty
November 2021
Inflation Adjustment on Specific Rates of Excise Duty
Introduction
The Excise Duty Act, 2015 (the Act) changed the excise duty structure from ad valorem to specific, save for food supplements, motor vehicles and cosmetics. The use of specific duty rates gives the Kenya Revenue Authority (KRA) the opportunity to adjust the excise duty rates to take into account inflationary pressures and respond to changes in the economy. Section 10 of the Act confers powers to KRA to adjust, the Excise Duty rates of products with specific rates of Excise Duty, annually, to take into account the rate of inflation, subject to the approval of the Cabinet Secretary National Treasury and Planning.
The rates of excise duty on excisable goods that have a specific rate of duty, were adjusted using the average inflation rate for the 2020/2021 financial year of 4.97% as required under Section 10 of the Act, effective 2nd November 2021.
Legal Notice No.217 of 2021
The adjusted rates were gazetted under Legal Notice No.217 of 2021. The list of the goods affected is provided below:-
| Description | Old Rate of Excise Duty | New Rate of Excise Duty |
Fruit juices (including grape must), and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter | Sh. 11.59 per litre | Sh. 12.17 per litre |
Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices | Sh. 5.74 per litre | Sh. 6.03 per litre |
Beer, cider, perry, mead, opaque beer and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of alcoholic strength not exceeding 6% | Sh. 116.08 per litre | Sh. 121.85 per litre |
Powdered beer | Sh. 116.08 per kg | Sh.121.85 per kg |
Wines including fortified wines, and other alcoholic beverages obtained by fermentation of fruits | Sh. 198.34 per litre | Sh. 208.20 per litre |
Spirits of undenatured ethyl alcohol; spirits liqueurs and other spirituous beverages of alcoholic strength exceeding 6% | Sh. 265.50 per litre | Sh. 278.70 per litre |
Cigars, cheroots, cigarillos, containing tobacco or tobacco substitutes | Sh. 13,247.63 per kg | Sh. 13,906.04 per kg |
Electronic cigarettes | Sh. 3,974.08 per unit | Sh. 4,171.59 per unit |
Cartridge for use in electronic cigarettes | Sh. 2,649.74 per unit | Sh. 2,781.43 per unit |
Cigarette with filters (hinge lid and soft cap) | Sh. 3,312.96 per mille | Sh. 3,477.61 per mille |
Cigarettes without filters (plain cigarettes) | Sh. 2,384.24 per mille | Sh. 2,502.74 per mille |
Other manufactured tobacco and manufactured tobacco substitutes; “homogenous” and “reconstituted tobacco”; tobacco extracts and essences | Sh. 9,273.55 per kg | Sh. 9,734.45 per kg |
Motorcycles of tariff no. 87.11 other than motorcycle ambulances and locally assembled motorcycles | Sh. 11,608.23 per unit | Sh. 12,185.16 per unit |
Imported sugar confectionary of tariff heading 17.04 | Sh. 35 per kg | Sh. 36.74 per kg |
White chocolate, chocolate in blocks, slabs or bars of tariff nos. 1806.31.00, 1806.32.00, and 1806.90.00 | Sh. 209.88 per kg | Sh. 220.31 per kg |
| Products containing nicotine or nicotine substitutes intended for inhalation without combustion or oral application but excluding medicinal products approved by the Cabinet Secretary responsible for matters relating to health and other manufactured tobacco and manufactured tobacco substitutes that have been homogenized and reconstituted tobacco, tobacco extracts and essences | Sh. 1,200 per kg | Sh. 1,259.64 per kg |
High Court Order on Inflation Adjustment on Specific Rates of Excise Duty
The High Court has halted the implementation of adjustment of prices on specific rates of excise duty on excisable goods as gazetted by KRA under Legal Notice No.217 of 2021, effective 2nd November 2021. The case was filed by advocate Mwaura Kabata who averred that consumers would experience financial constraints due to the increased tax pressure. Furthermore, the petitioner contended that the taxman actions to adjust the inflation rate was not based on research findings and the authority had “blindly borrowed” from previous existing rates and if left untamed would occasion business collapse due to reduced returns by affected enterprises.
High Court Justice James Makau has directed KRA to maintain status quo, pending the determination of the case filed by the petitioner. The High Court direction offers temporary reprieve for Kenyans who are consumers of the products targeted by the inflation adjustment of excise duty.
Way Forward
As we await High Court ruling over the matter, we encourage all companies that deal in excisable goods to take note of the new rates and plan their activities accordingly. We are available to assist in reviewing your operations to ensure continued compliance with excise duty and other taxes.
Please do not hesitate to contact us, should you require further guidance and assistance as necessary.
Moses Mwendwa Managing Director mmwendwa@czmkenya.com
Benson Njiru Director, Advisory & Tax benson.njiru@czmkenya.com
Betty Komen Tax Associate bettykomen@czmkenya.com
Martin Mugo Tax/Legal Intern edwinmugo165@gmail.com
This publication constitutes only a brief guide and is not intended to be a comprehensive summary of the Act nor the tax law and practice. No one should act on this publication without appropriate professional advice, following a thorough examination of their particular situation. While all reasonable care has been taken in the preparation of this guide, HLB Cezam accepts no responsibility for any errors it may contain, whether caused by negligence or otherwise, or for any loss, however caused or sustained by any person that relies on it.
