KRA Faulted on Proposal to Raise Rates on Excise Duty 

PwC Warns New Tax Notice May Cause Confusion on Effective Date

PricewaterhouseCoopers (PwC) on Tuesday said the Legal Notice No. 217 issued by Kenya Revenue Authority Commissioner General, Githii Mburu “…is likely to create confusion”.

According to the Finance consulting firm, the tax collector’s notice seeks to adjust excise duty levied on various products was published on November 2, 2021, but is dated 15, October 2021 and does not clearly define its effective date.

“The effective date could be subject to varying interpretation, which is bound to present compliance challenges to businesses and disputes with the tax authority,” they note in their Tax Alert.

Mburu reviewed upwards the excise duty rates for specific products, excluding petroleum products, to take into account the rate of inflation for the financial year 2020/2021 which is averaged at 4.97%.

The inflationary adjustment was introduced to ensure that the duty does not lag as price levels increase due to inflation. 

This was as a result of the Excise Duty Act, 2015 (the Excise Act), introducing specific excise duty rates for most products except cosmetics, food supplements and motor vehicles.

The new rates are based on the inflationary adjustment formula which is prescribed in the Excise Act. It stipulates specific excise duty rates based on the average rate of monthly inflation of the preceding Government fiscal year.

Affected products include fruit and vegetable juices, bottled water, beer and ciders, powdered beer, wines and alcohol spirits. 

Others are cigarettes, cigars and tobacco products, electronic cigarettes and cartridges used in electronic cigarettes, and other manufactured tobacco substitutes.

The new rates will also apply to imported motorcycles except for motorcycle ambulances, imported sugar confectionery, and white chocolate.

However, a notable exception from Legal Notice No. 217 is an excise inflation adjustment on petroleum products. This follows a petition filed at the High Court in Nairobi seeking to block KRA from adjusting excise duty on petroleum products through a public notice issued on August 10, 2021. 

The court issued conservatory orders on September 27, 2021, with respect to petroleum products, pending the hearing and determination of the matter.

The Petroleum Products’ (Taxes and Levies) (Amendment) Bill, which is sponsored by the House Committee on Finance and National Planning seeks to reduce the price of Diesel, Petrol and Kerosene following public outrage that prompted Parliament to start a review of the taxes on fuel.

The Bill proposes a reduction of the Petroleum Development Levy charged on super petrol and diesel from Ksh 5.40  to Ksh 2.90 and reduce VAT from eight per cent to four per cent.