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Experts call for re-introduction of uniform cigarette excise tax

By Steve Umidha

The national Treasury has been asked to re-introduce a uniform specific tax rate for all cigarettes in Kenya to gain more revenue and reduce abuse.

Tax experts said yesterday that the current tier system denies the government revenue, arguing that all tobacco products should be taxed equally to prevent users from switching brands and types due to price differences.

The International Institute for Legislative Affairs (IILA), a Nairobi-based economic think-tank, said the excise duty Act of 2015 created a simplified tobacco tax structure where all tobacco products were charged the same rate of excise duty irrespective of brand or price.

“Increase by 15 per cent excise duty on the current higher tiered products and make this rate the uniform specific rate applicable to all cigarettes. Increase in tax rate imposed will lead to increase in the amount of solatium compensation fund tobacco firms are obligated to pay under the Tobacco Control Act 2007 and Regulations 2014,” said Philip Musamia, IILA’s head of Policy Development & Legislative Engagement.

The Finance Act of 2019 imposed a rate of Sh 3,157 per mille for cigarettes with filters (hinge lid and soft cap) and Sh2,272 per mille for cigarettes without filters (plain cigarettes) and a further inflation tax adjustment of 5.17 per cent raised it to Sh 3,320 for filtered cigarettes and Sh 2,389 for those without.

But none of the adjustments on the aforementioned has been factored in the budget statement for the year 2020-2021, according to the institution, which now wants the figures reviewed.

Previously, the rates were capped at Sh2, 630 and Sh1, 893 per mille (thousand sticks) for cigarettes with filters and filter-less respectively, which made cigarettes cheaper and reduced revenue for the government.

The tiered tax structure creates incentive for repositioning of brands with some manufacturers reducing the Retail Selling Price of their lead brands in order to qualify for a lower tax rate, keeping their products cheap, even with regular tax increases.

Ultimately, experts have argued that this induces smokers to switch to their cheaper brands instead of quitting.
Given the current covid-19 pandemic such a move would have been ideal in the fight against tobacco products.

In its recommendations, IILA has also suggested that a portion of the tax revenue should fund programmes to reduce the health burden caused by tobacco use.

Further, the institute has argued that the Initial Fund for the Tobacco Control Fund as stipulated under the Draft Tobacco Control Fund Regulations should be set at a higher Sh 80 million to sustain tobacco control projects run by the Ministry of Health under the Tobacco Control Division, the Tobacco Control Board and NMS.

“Low tobacco taxes and prices should never be viewed as a ‘pro-poor’ policy. Low taxes and prices lead to greater tobacco use amongst the poor hence they bear a disproportionate share of the health and economic burden,” it said.

July 2020, amendments to the Annual Finance Act moved the planned imposition of a 5.5 per cent increase in excise duty (per annual inflation rate) on about 31 different goods including inter alia fuel, alcohol, cigarettes, fruit juices and motorcycles by six months from July 1st 2020 to January 1st, 2021.

In June 2015, Kenya attempted to simplify the cigarette excise tax structure by introducing a uniform specific rate of Sh 2500 per 1000 cigarettes or Sh 50 per pack (Excise Duty Bill, 2015).

Compared to the previous system, this shift would have implied a 1 per cent increase in the excise rate for premium brands such as Dunhill and Embassy), a 37 per cent increase for mid-price brands, Sportsman, Sweet Menthol, and Safari), and an 81 per cent increase for economy brands Rooster, Super Match, and Rocket).
On 27 August 2015 Parliament passed an amendment to the Excise Tax Bill by reinstating the tiered specific excise system for cigarettes based on package characteristics and retail selling price again as it prevailed prior to 2011.

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