Excise Duty Bill 2015 Information Brief

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Excise Duty Bill 2015 Information Brief

BACKGROUND

  1. The right to the highest attainable standard of health is enshrined in the Constitution of Kenya as well as other national policy documents such as Vision 2030; the blue print for Economic, Social and Political development; as well as Regional and Global Treaties and Conventions that the country is signatory to such as the United Nations Millennium Development Goals (UN-MDGs).
  2. The Constitution under Article 2(5&6) outlines that general rules of international law shall form part of the law of Kenya, and any treaty or convention ratified Kenya shall be part of the law of Kenya.
  3. A major and rising contributor to the high disease burden in Kenya is Non- Communicable Diseases (NCDs),       which currently contribute 50-70% of all hospital admissions, half of inpatient mortality and 55% total mortality . Tobacco use and exposure to tobacco smoke is a major risk factor for NCDs.
  4. Kenya is signatory to the World Health Organisation Framework Convention on Tobacco Control (WHO-FCTC); which amongst other strategies proposes the use of prices and tax measure as an effective strategy for reducing consumption and prevalence of tobacco. Kenya ratified the FCTC in 2004 and domesticated through the Tobacco Control Act, 2007.
  5. Section 12 of the Tobacco Control Act of 2007(Tax and price policies) states that The Minister for the time being in charge of Finance shall—
    • a) Implement tax policies and where appropriate, price policies on Tobacco and tobacco products so as to contribute to the objectives of this Act;

 

 

The EXCISE DUTY BILL, 2015 (as proposed by National Treasury)

The Bill proposes that cigarettes containing tobacco or tobacco substitutes be taxed at a rate of Shs. 2500 per mille

 

AMENDMENTS TO THE EXCISE DUTY BILL 2015, (NATIONAL ASSEMBLY BILL NO. 28 OF 2015) AT THE COMMITTEE STAGE

On Thursday 27th August 2015, the Chairperson of the Departmental Committee on Finance, Planning and Trade, to the Excise Duty Bill, 2015 during the Committee Stage, moved the following amendment to the First Schedule:

 (iii) By deleting the item on “Cigarettes containing tobacco or tobacco substitutes” and the corresponding rate of excise duty and replacing it with the following new items—

Plain cigarettes or cigarettes with ex-factory selling price of up to Shs.2,750 per mille Shs.900 per mille
Soft cup cigarettes with ex-factory selling price of Shs. 2,751 to Shs. 3,750 per mille Shs.1200 per mille
Soft cup cigarettes with ex-factory selling price of Shs.3, 751 to Shs. 4, 750 per mille Shs.1,800 per mille
Hinge lid cigarettes or cigarettes with ex-factory selling price of more than Shs.4,750 per mille Shs.2,800 per mille

EFFECTS OF THE PROPOSED AMMENDMENTS

The adoption of this proposal by the National Assembly has huge negative ramifications both to public health and fiscal objectives of the government. It also goes against global best practices for tobacco tax administration recommended by the WHO.

  1. First, the government will collect less revenue. This is because the current tax rate is Kshs 1,200/= per mille or 35% selling price; and the Bill as presented by treasury proposes that this is increased to Shs. 2500 per mille. The proposed amendments fall below this rate.
  2. Furthermore, the proposal can be easily manipulated by the manufacturers through price changes and thus impacting on tax projections and actual revenue levels.
  3. Secondly, cigarettes will increasingly become affordable and young people can easily access them. The re-introduction of tax bands negates the gains that the country has made since the year 2010. Bands allow for substitutions particularly among the youth and the low income groups and thus encouraging consumption. It is therefore vital that tobacco products should be taxed uniformly because of the negative health effects.
  4. Thirdly, the determination of tax policies based on Ex-Factory Prices is very problematic in implementation and thus it makes tax administration problematic. International practices show that countries are shifting from this and are increasingly adopting Specific Tax Regimes that are periodically adjusted to cater for inflation.
  5. Kenya is already on track in tobacco tax administration and is seen as a global leader in this area. The tables below show the trends in tobacco tax structures and rates, culminating in the present across Board rate of Ksh. 1200 per mille or 35% of Retail Selling Price (RSP).

Table 1: Pre- 2008 Cigarette tax structure and rates

Category Pre- 2008 definition Duty payable
A Cigarettes – RSP up to Ksh 1,500 per 1,000 sticks 495
B Cigarettes – RSP between Ksh 1,501 and Ksh 2,500 per 1,000 sticks 781
C Cigarettes – RSP between Ksh 2,501 and Ksh 3,500 per 1,000 sticks Discount:
D Cigarettes – RSP over Ksh 3,500 per 1,000 sticks 1696.20

Table 2: Post 2008 Cigarette tax structure and rates

Category Post – 2008 definition Rate of excise duty Ksh. Per mille
A Plain cigarettes or plain cigarettes RSP of up to Ksh 2,500 per mille 700
B Soft Cap cigarettes of <72mm or soft cap cigarettes with RSP of Ksh 2501 – 3,500 per mille 1000
C Soft cap cigarettes of >72mm or soft cap cigarettes with RSP of Ksh 3501 – Ksh 4,500 per mille 1500
D Hinge lid or RSP of more than Ksh 4,500 per mille 2500

The Finance Act 2012 changed the structure of taxation of Tobacco by collapsing the four tax bands which were based on Retail Selling price into one.

Table 3:Current cigarette tax structure and Rate

Description Rate of excise duty
Cigarette Ksh. 1200 per mille or 35% of retail selling price
   

KEY MESSAGES:

We commend the Government of Kenya for the on-going efforts and commitment to the fight against drug and substance abuse and call upon the H.E the President to send a strong message to the nation on the importance of the health of many who are suffering from the effects of tobacco consumption and exposure. We specifically appeal to the President to: 

  1. NOT assent to the Excise Duty Bill, 2015 as approved by the National Assembly on August 27th 2015. We request you to call on the National Assembly to consider reversing this proposal and retaining the item under ‘cigarettes containing tobacco or tobacco substitutes at Sh. 2,500 per mille’
  2. Direct the Cabinet Secretary of Health to:
    • Re-sensitize the relevant Committees of Parliament on Tobacco Control and importance of tax and price measures; including the dangers that the amendments pose.
    • Convene an Inter- ministerial Meeting to address multi- sectoral concerns on Tobacco Control and call on government departments to speak in one voice by prioritizing Public Health over commercial interests
By | 2018-03-16T16:03:28+00:00 September 1st, 2015|Notices, Policy Briefs, Tobacco Control|0 Comments

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