High spirits taxes driving Kenyans to illicit alcohol

The recent surge in taxation on spirits and alcoholic beverages has left both consumers and stakeholders grappling with the implications.

One of the most immediate effects of elevated alcohol taxes is felt in consumers' wallets. 

With the price hike, the cost of a night out or a quiet drink at home has soared, prompting concerns about its impact on the spending habits of Kenyans. 

Industry analysts predict a potential decline in spirit consumption, as citizens may opt for illicit brews. 

In a presentation to the National Assembly’s Finance Committee, the Kenya Revenue Authority reported a 20.7% drop in the tax collection from spirits for the first quarter of Financial Year 2023/24.

Industry experts have warned that this points to a shift in consumption trends as many Kenyans downgrade to illicit alcohol. This does not help the government's efforts to get rid of illicit brews.

“A recent industry report from Euromonitor indicates that nearly two-thirds of alcohol being consumed in Kenya is illicit, meaning that far more people are resorting to the bad stuff that not only endangers their life but also denies the Exchequer due revenues. 

“Spirits have faced double-digit annual excise tax increases since 2015, deepening an affordability problem that has now been worsened by runaway input costs such as ethanol – up 61 percent during our last financial year, among others,” says Kenya Breweries Limited Managing Director Mark Ocitti.

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On the other hand, KRA reported an increase in tax revenues for beer, recording a 7.3% bump. 

 The performance was mainly driven by an increase in delivered volumes of beer. 

Whereas beer category tax collections are likely to grow fastest in this 2023/2024 financial year and encourage the Treasury to hold taxes for longer as consumers adjust to pricing changes in recent years, spirits performance remains a deepening concern.

Brewers are also facing another challenge, which is KRA’s requirement that excise duty must be remitted within 24 hours. 

“It is a nuisance and cumbersome. It is a burden on our cashflow and a burden on our overheads because we have had to create a whole new back office. We are lucky because we are a big organisation and we can handle it and my worry is for a smaller business that would not have that capacity,” Ocitti says. 

As the alcoholic beverages industry navigates these challenges, the question of striking a balance between curbing illicit alcohol and sustaining a viable market for legal beverages remains a concern. 

Earlier in the year, the business reported that the average monthly consumer spending on alcoholic beverages reduced by 5 per cent in the periods before and after Covid-19.

The company reported a 21 per cent reduction in profit in the last financial year, with

revenue from Kenya, its biggest market, dropping by 4 per cent as Kenyans adjusted to the effect of multiple excise tax increases.