In new plans aimed to make the tax more predictable for producers and consumers, the government is planning to stop the annual adjustment for inflation on certain excise taxes.
According to a brief released by the State House on Thursday, the Treasury would seek Parliament in the Finance Bill 2023 to forbid the Kenya Revenue Authority (KRA) from making the adjustment, which was adopted in 2018 to guard against the loss of the government’s spending power by rising cost of living.
Referring to the State House brief on the budget, “the Bill proposes to repeal the provision that permits the Commissioner General to adjust specific excise duty annually on account of inflation.” This will improve the predictability of excise duty rates.
However, the Finance Bill 2023 itself has not yet been introduced in Parliament as of Thursday.
Petroleum products, alcoholic drinks, cigarettes, bottled water, fruit juices, motorcycles, and confectionary are among the goods that are subject to a specific excise rate.
The adjustment was put in place since the government’s part of the duty is set at a specific level and will be at risk if the price of the goods increases as a result of inflation.
However, items charged with ad valorem excise, which is assessed as a percentage of the value of the commodities, are unaffected by the annual inflation adjustment.
This means that as the cost of these goods—which include mobile airtime, imported motor vehicles, and money transfer services—increases, so does the Treasury’s revenue.
Currently, the National Treasury Cabinet Secretary’s approval via a notice in the gazette allows the KRA to modify inflation once annually.