Treasury Asked to simplify tobacco excise tax structure and increase the rate to promote public health and raise government revenue
For Immediate Release
28th February 2018
- tobacco use is a major contributor to the growing burden of Non- Communicable Diseases (NCDs), which currently contribute 50-70% of all hospital admissions, half of inpatient mortality and 55% total mortality in Kenya.
- Tax and price measures are considered to be one of the most effective tobacco control strategy due to their potential to discourage initiation, encourage quitting of tobacco use and generate much needed revenue for governments.
- Historically, Kenya has had a complex tobacco tax system for a long time shifting between specific (fixed amount for each unit of a good sold- eg per mille/ 1000 sticks for tobacco products), ad valorem (levying of tax in proportion to the estimated value of the goods) or mixed system as well as different models of tiered structures based on Retail Selling Price (RSP), product characteristics and / or packaging characteristics.
- The Excise Duty Act of 2015 introduced a uniform specific rate of Kshs. 2500 per mille- a significant step that introduced a single tier with a specific excise and eliminated the ad valorem. This move led to a drop of 17% in consumption of cigarettes and an increase of revenue of approximately 3billion (from 9billion to 12 billion).
- Despite the successes of the uniform tax structure introduced by the Excise Duty ACT of 2015, the last budget statement (2017/ 2018) reverted back to a tiered system with introduction of two bands of Kshs. 2,500 per mille for cigarette with filters and Kshs. 1,800 per mille for plain cigarettes. This move reintroduced a complex multi- tier structure with a lower tax rate on the lower tier, and tiers that depend on product characteristics (filter), with the following outcomes:
|Challenges of the budget statement 2017/ 18
– The Tobacco Industry have manipulated the tax system, by introducing non-filter cigarettes to avoid the higher tax tier (i.e. Kshs. 2,500), leading to loss in government revenue
– Whereas nominal prices of cigarettes has remained constant, real prices have shrunk contributing to affordability of cigarettes. In fact, newly introduced filter-less products (e.g. Sportsman full flow) are cheaper than their original brand variant (sportsman king size) thus defeating public health goals of tobacco taxation
– Tobacco tax administration is made difficult with complexity in tax structure due to challenges in projecting and collecting the revenues
– Non-filter cigarettes allow for more and bigger sizes of tar to be consumed during smoking
|IILA’s tax adjustment proposals for financial year 2018/2019
1. Simplification of tobacco tax structure by re-introduction of a uniform specific tax rate (single tier) for all cigarettes. This will help to ensure that tax policy does not create opportunities for the tobacco industry to reduce their prices in order to avoid/ evade paying excise taxes
2. Increase of the flat cigarette tax rate from Ksh. 2,500 per mille to Ksh. 3,100 per mille (see annex 1 for supporting model). This will help the country move towards the WHO recommended 70% of Retail Selling Price(RSP) and contribute to higher revenue for government revenue while helping to reduce consumption
3. All tobacco products should be taxed equally to prevent tobacco users from switching tobacco brands and types due to price differences
4. Ensure that inflation does not erode the real value of the excise tax by indexing taxes
5. The government should continue strengthening tax administration
6. The government should consider using a portion of the tax revenue collected to achieve its “Affordable healthcare for all” objectives. This may be done through dedicating adequate amounts) (committing without legislation) or considering earmarking (through legislation) of taxes for public health programs.
|For more information, kindly contact
The CEO- IILA
Tel: +254 723942347
The International Institute for Legislative Affairs if a not-for-profit Civil Society Organization formed in 2004 in Nairobi, Kenya. IILA works with policy makers; including government departments and agencies, Members of Parliament, County Governments and other stakeholders to advocate for pro- people policies and legislation. Our mission of to “enhance legislative process by providing technical support to law making institutions and other stakeholders.