Indirect Tax Alert | 10 December 2015

Kenya enacts Excise Duty Act, 2015

  • Share

Executive summary

On 6 November 2015 the President of Kenya assented to the Excise Duty Act, 20151 which provides for the charge, assessment and collection of excise duty, to make administrative provisions relating thereto and for connected purposes.

The effective date for Excise Duty Act, 2015 is 1 December 2015 as per the Legal Notice No.245.

The key provisions in the Act which are applicable immediately are:

  • Move from the use of both ad-valorem and specific duty rates to generally specific duty rates
  • Adjustment of specific rates of duty on excisable goods for inflation at the beginning of every financial year
  • Removal of certain goods which do not have harmful effects from the list of excisable goods (i.e., cosmetics goods and other beauty products)
  • Introduction of new items on the list of excisable goods ( electronic cigarettes and cartridges, some types of motor cycles)
  • Introduction of miscellaneous provisions which include anti-avoidance provisions
  • Higher penalties for offenses committed

Detailed discussion

Key provisions

There is a general shift from the use of both ad-valorem and specific duty rates to generally specific duty rates except on food supplements and supply of excisable services which are charged at 10% of their excisable value.

Excisable services

The definition of “other fees” has been expanded to include any fees, charges or commissions charged by financial institutions relating to their licensed financial institutions, but excludes interest on loan or return on loan or an insurance premium or premium based or related commissions.

Annual inflation adjustments

Given that most of the excise duty rates are now specific rates, the Act has introduced an annual inflation adjustment to either increase or decrease the rate in the following year.

The rate of excise duty will be replaced every year by the rate calculated as A X B where:

  • A – is the rate of excise duty on the day immediately before the adjustment day
  • B – is the adjustment factor for the adjustment day calculated as one plus annual average rate of inflation of the preceding financial year

Adjustment day means 1 July of every year.

Excise stamps

The Act mandates the Cabinet Secretary to specify, in regulations, excisable goods to which excise stamps shall be affixed, the system for management of excise stamps and goods and time and place of affixing stamps.

The Excisable Goods Management System Regulations were issued in 2013 vide legal notice 110, the implementation of which has been in phases. Currently, all excisable goods (apart from white products) are to have excise stamps as stipulated by the commissioner.

Refunds

There are clearer guidelines on procedures for the refund application arising out of damaged goods, stolen goods, returned goods or excise duty paid in respect of spirits that have subsequently been used to manufacture unexcisable goods.

The timelines for the refund and situations that qualify for refunds have also been clarified.

Remissions

The Act also empowers the Secretary to grant remission on certain matters. Specifically, remission may be granted wholly or partially by the Cabinet Secretary by notice in the Gazette in respect of beer or wine made from sorghum, millet or cassava or any other agricultural products, (excluding barley), grown in Kenya. Certain conditions will however be attached to the remission as may be specified the gazette notice.

Relief for raw materials

Excise duty paid on excisable goods which have been used as raw materials in the manufacture of other excisable goods (finished goods) shall be offset against the excise duty payable on the finished goods. This is a relief to some of the manufacturers who use excisable goods as raw materials.

Offenses and penalties

Offenses under the Act which include dealing with excisable supplies without a license or manufacture of excisable goods in unlicensed premises will attract penalties of up to double the amount of the excise duty that would have been imposed or is payable. The previous regime pegged the penalties to KShs500, 000.

Miscellaneous provisions

The Act introduces stringent provisions on tax avoidance schemes entered into to give tax benefits. The Commissioner may determine the excise duty liability of the person who obtained the tax benefit as if the scheme had not been entered into and carried out.

The tax avoidance schemes includes a course of action, or an agreement, arrangement, promise, plan, proposal, or undertaking, whether express or implied, and whether or not legally enforceable. Further, the Act requires that all transactions between related parties be undertaken at arm’s length.

Transition provisions

The introduction of the Act repeals the Customs and Excise Act which has been in force for matters related to excise duty, having been previously repealed with respect to matters related to the Customs and import duty with the introduction of the East Africa Community Customs Management Act in 2005. However, a few sections of the Customs and Excise Act are still in force to facilitate a smooth transition into the new Act. These include such provisions relating to the imposition of railway development levy, export duties and import declaration fee, the provisions dealing with the assessment and collection of any tax and the recovery of any penalty payable under that Act and outstanding at the date of the commencement of the Excise Duty Act, 2015 among other transitional provisions. The former provisions remain in force as we await the legislation of another Act of Parliament to legislate on these aspects.

Endnote

1. Excise duty, commonly referred to as “sin tax” is a tax on the importation or local manufacture of certain products and supply of excisable services. Prior to the enactment of the Excise Duty Act, 2015, (the Act) the Kenyan excise duty provisions were enshrined in the Customs and Excise Act, Cap 472 (now repealed).

For additional information with respect to this alert, please contact the following:

Ernst & Young Kenya, Nairobi
  • Catherine Mbogo
    +254 20 271 5300
    catherine.mbogo@ke.ey.com
  • Francis Kamau
    +254 20 271 5300
    francis.kamau@ke.ey.com
  • Jemimah Mugo
    +254 20 271 5300
    jemimah.mugo@ke.ey.com
  • Hadijah Nannyomo
    +254 72 984 7195
    hadijah.nannyomo@ke.ey.com
  • Alex Ngingo
    +245 20 271 5300
    alex.ngingo@ke.ey.com
  • Clifford Otieno
    +245 20 271 5300
    clifford.otieno@ke.ey.com
  • Esther Muteti
    +245 20 271 5300
    esther.muteti@ke.ey.com
Ernst & Young Advisory Services (Pty) Ltd., Johannesburg
  • Folkert Gaarlandt
    +27 11 772 5220
    folkert.gaarlandt@za.ey.com

EYG no. CM6046