Tobacco companies have opposed a proposal to raise the tax on cigarettes that could see smokers pay Sh7 to the Treasury for every ten shillings spent on their products. The move is aimed at boosting government revenue and aligning Kenya’s taxation regime with international standards. The Institute of Legislative Affairs (ILA) is proposing that the Treasury increase taxes on cigarettes to an effective rate of 70 per cent, the internationally recommended level by the World Health Organisation (WHO).
“Taxes account for 55 per cent of the cigarette prices in Kenya, which is much lower than the WHO recommended threshold of 70 per cent,” said the ILA last week, citing countries like Thailand, at a pre-budget hearing organised by the Institute of Economic Affairs.
British American Tobacco (BAT) Kenya and Mastermind Tobacco opposed the proposal claiming it would increase cigarette smuggling by tax evaders.
“This issue should be looked at in the context of the implications on the entire tobacco industry.
Experience in other countries, Canada being one such example, has shown that such initiatives lead to significant increases in consumer pricing leading to the growth of illicit trade,” said BAT East and Central Africa head of Corporate and Regulatory Affairs, Joe Muganda. “Which is not good for government revenues.”
Mastermind Tobacco spokesman Josh Kirimania, said that the new proposal is discriminatory to the majority of low-income smokers. “It is unfair to charge the same tax for people who are the lower end of the market with those at the top,” said Mr Kirimania.
He said that Mastermind Tobacco is lobbying the Treasury to have a change of heart and go back to the old system that categories products based on their charateristics, arguing this is the norm for other industries – and the tobacco sector ought not to be an exception. Malted beers and spirits are taxed differently in the alcohol industry.
The ILA executive director, Vincent Kimosop, said the proposal is based on a study done on the Sportsman brand, since it is the most popular in the market.
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Mr Kimosop said the Treasury would be following the law since the Tobacco Act 2007 allows the Finance minister to increase levies on cigarettes.
“The minister for the time being in charge of Finance shall implement tax policies where appropriate price policies on tobacco and tobacco products so as to contribute to the objectives of this Act,” the law states.
The processes of manufacture, sale and production of tobacco products are regulated by the Act.
To ensure that the effective taxation rate is not reduced, there is a proposal to peg the tax to inflation, which implies that the rate will be adjusted in tandem with the changes in costs of goods.
Mr Kimosop said that inflation had gone up since the amendments to the Finance Bill were made in June, when the Budget was read, and as such the tax rate used then has been eroded by the rise in inflation.