The Finance Bill of 2024 seeks to bring significant changes to the landscape of alcoholic beverages. A notable shift proposed in this legislation is the adjustment of taxation from a flat rate per litre to one based on alcohol content. For enthusiasts of beer and cider, this change heralds a considerable victory, as it means a reduction in excise duty for these beverages, potentially leading to lower prices for these favoured beverages. To illustrate, consider a 330 ml bottle of Smirnoff Pineapple Punch with 5.5% alcohol content. Presently, it incurs an excise duty of KSh 47, but under the new bill, this would decrease to KSh 40. Similarly, a 500 ml bottle of White Cap Lager, with 4.2% alcohol content, currently carries an excise duty of KSh 71.22, which would decrease to KSh 47.25 under the proposed changes. The impact of the excise reduction will likely be more pronounced in beers with higher volumes and lower alcohol content compared to those with lower volumes and higher alcohol content, though delving into the intricacies of those mathematics isn’t necessary at this point.

Sounds promising, right? However, a closer examination reveals a different story for spirits. The proposed increase in excise duty for spirits paints a contrasting picture, with prices set to rise substantially. The Treasury suggests raising excise duty on a litre of spirits from KSh356.42 to a range between KSh592 and KSh720, depending on alcohol content ranging from 37% to 45%. This shift will uniformly escalate excise duty, potentially resulting in higher prices across the spectrum of spirit beverages.

While the proposal to adjust the taxation model may seem like a logical move given its historically high tax burden on beers, it could inadvertently hinder efforts to combat the rampant sale of illicit alcohol. Currently, spirits stand as the most counterfeited alcoholic beverages. Counterfeiters find spirits particularly attractive due to the promise of substantial profits, streamlined production methods, and the ease of infiltrating legitimate distribution networks. This grim reality highlights a significant challenge: legitimate products struggle to compete as pricing dynamics drive consumers towards cheaper, illicit alternatives readily available on the market. Price and accessibility emerge as paramount factors influencing consumer choices, thereby fueling the illicit alcohol trade. The harsh truth is that consumers prioritise obtaining higher alcoholic content at the lowest possible price, often overlooking the legitimacy of the product. This inclination could lead consumers to seek out more expensive brands with high alcohol content at lower prices within the illicit market.

Beyond counterfeit alcohol, another challenge of illicit alcoholic trade arises from the proliferation of illicit artisanal production. While the production and sale of artisanal homebrew remain legal on a domestic scale in Kenya, it becomes illicit when commercialised for monetary gain. This shift occurs due to concerns regarding adulteration with harmful chemicals and associated hygiene, health and safety risks in the manufacturing process. Once again, the affordability and potency of these beverages hold appeal, particularly for low-income and impoverished consumers nationwide.

A recent report commissioned by the Alcoholic Beverages Association of Kenya (ABAK) paints a grim picture, revealing Kenya’s staggering annual loss of KSh71 billion in tax revenue due to the thriving trade in illicit alcohol. Given this context, it’s imperative to question the potential impact of further increasing excise duties on spirits. By crunching the numbers, it becomes evident that such a move would not only exacerbate the existing problem but also risk haemorrhaging even more revenue into the coffers of illicit traders. The paradox is stark: while the aim of hiking taxes is to bolster government revenue, the unintended consequence may well be the expansion of the illicit market, further eroding the tax base. Moreover, it raises serious concerns about the efficacy of Kenya’s efforts to combat the scourge of illicit alcohol. Will an increase in excise duties serve as a deterrent or inadvertently fuel the illicit trade, perpetuating a cycle of lost revenue and social harm? These are pressing questions that demand careful consideration in navigating the delicate balance between fiscal policy and public health. 

The fight against illicit alcohol is a complex one. A more nuanced strategy should be considered. While Revenue raising measures and crackdowns on the illegal production and distribution of these beverages remain important, policymakers should be mindful of stifling the competitiveness of legal industry players. This approach can chart a course towards a more resilient future. Policymakers ought to strike a balance between regulatory measures and economic vitality.