There are two ways to change the amount of excise duty charged on Kenyan goods; first, the National Treasury’s Cabinet Secretary may adjust the excise duty upwards or downwards by not more than 10 per cent with the approval of the National Assembly. Second, the Commissioner General of Kenya Revenue Authority is required by law to adjust the excise duty to factor in inflation annually.
In December 2018, both the Cabinet Secretary and the Commissioner General used their powers to adjust the rate of excise duty charged on some products.
On 3 December 2018, the Cabinet Secretary issued legal notice Number 240 (LN 240) indicating a reduction of 4.9 per cent on the excise duty charged on petroleum products. The new rate had an effective date of 12 December.
Shortly afterwards, the Commissioner-General issued new inflation adjusted rate of excise duty legal notice number 239 (LN 239) on excisable goods. The new rate was a 5.2 per cent increase on the excise duty for diverse goods such as fruit juices, beers, wines, cigarettes, petroleum products and motor cycles. The new inflation adjusted excise duty was issued on 11 December and came into effect on the same date. The new rate was gazetted on 21 December 2018.
In July 2018, attempts by KRA’s Commissioner General to adjust excise duty for inflation through the legal notice 164 (LN 164) was annulled by parliament due to insufficient public participation. However, some manufacturers adjusted their excise rates based on the annulled legal notice 164. A report by PwC,Tax Alert: Excise Duty rates adjusted, questions if these taxpayers are eligible for tax refunds for the excise duty paid based on the annulled legal notice.
The new inflation adjusted excise duty on motor cycles rose to Ksh 10,520 from Ksh 10,000. However, excise duty on petroleum products remained unchanged. The earlier directive by the Cabinet Secretary to reduce excise duty on petroleum products by 4.9 per cent was reversed by the Commissioner General’s instructions to increase excise duty on the same products by 5.2 per cent.
The time lag between the dates the legal notices were issued and the time they were gazetted is likely to cause compliance challenges among manufacturers of the excisable goods.
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