Last week, Treasury CS Ukur Yatani announced a raft of changes in the tax regime in his 2020/21 budget. CS Ukur Yatani acknowledged that the advent of COVID-19 had seen the government impose tax relief measures that will affect the revenue collection basket. Among those targeted in the new taxes include the digital market place, pensioners and beer lovers.
It is public knowledge that KRA might not be able to break even in its revenue collection target because of the tax cuts that were approved by the parliament to cushion Kenyans from COVID-19. But the taxman has not lost his eyes on the price. Starting July 1, Kenyans will be forced to dig deeper into their pockets to be able to purchase a wide range of goods including fuel, bottled water, juice, cigars and beer.
KRA is set to increase excise duty chargeable on at least 31 goods by about 5.5 per cent line with the law that demands excise duty be revised upwards as per the cost of living measure or the average rate of inflation in the 12 months through June. This implies that retail prices are likely to skyrocket, and to a population that is financially constrained due to COVID-19, things will be tough for a Wanjiku.
“The inflation adjustment implies that the manufacturers and importers will incur more excise duty per unit of their products and they will seek to recover the additional costs from consumers through higher retail prices,” a tax consultant noted.
However, this proposition has not been welcomed by manufacturers affected by the excise taxes who have argued that it will lead to price instability and distort the overall inflation. The uncertainty shrouding the rate of annual changes would curtail their long-term investment decisions.