Excise tax sparks beer price war as changes effected
The recent changes in the excise tax on beer have sparked a price war in the market as brewers take divergent positions on the inflation-tied levy.
The East African Breweries (EABL), has announced price increases of about Sh10 on a range of its products, Keroche Industries has signalled that it could also raise prices, while the Kenya Wine Agency Limited (KWAL) said on Friday it would not raise costs of its spirits.
Beer retailers are, however, known to add up way higher margins over and above the recommended retail price, setting up consumers for even more budget squeeze.
The EABL says the inflation-tied excise tax calculation is a welcome relief for the industry, which has for many years become unpredictable as varying taxation parameters have pushed up prices and hurt sales each year.
Corporate relations director Erick Kiniti said the new excise tax regime on beer is a positive step that will allow the brewers to make proper price planning and investment decisions.
“It is a good move and we have made the changes based on the new excise tax formula. Unlike the past where price changes were not predictable, now we can plan pricing and invest accordingly as sales volumes are not likely to swing wide based on huge price adjustments like we had in 2015 when it shot up by close to 50 per cent,” he said.
Treasury secretary Henry Rotich proposed the amendment to the Finance Bill 2018 to make excise taxes on beer and cigarettes subject to the inflation rate every year.
The taxation regime is meant to affect prices of beer, bottled water, petroleum products and cigarettes which will be going up every year.
But the Kenya Revenue Authority agreed to postpone the implementation of Excisable Goods Management System on bottled water and juice that was to start this month.
KWAL corporate affairs head Gordon Mutugi said the wine and spirits distributor had decided to absorb the tax and cut its operating costs to avoid passing the price increases to their consumers.
“KWAL will look at optimising efficiencies in order to offset the excise tax increase, thus enabling our customers and consumers to continue enjoying our great brands at the same prices. should circumstances change, we will timeously advise those affected,” Mr Mutugi told the Saturday Nation in a statement.
Keroche Industries Limited managing director Tabitha Karanja said the brewer would make price adjustments according to the new taxation but was still keen on exhausting its current stock.
“Whether one adjusts or not depends on how they have done their pricing at the moment. Keroche will make the increase but we still have to finish the current stock to be fair to our customers,” Ms Karanja said.
The government hopes to increase its Excise revenue collection from beer and cigarettes which grew by 1.6 per cent and 4.9 per cent, respectively in 2017 through the inflation-based taxation.