Consumers can now sigh in relief after KRA deferred a new tax for six months. The taxman has delayed a 5.5% excise duty, which was expected to start on July 1 in line with the Finance Act. The tax arising from annual inflation adjustment will be effective from January 2021 instead of July 1, in line with the Finance Bill of 2020.
Provision of the Finance Bill of 2020 requires the tax agency to revise tax upwards on at least 31 products, consistent with the average rate of inflation or the cost of living measure for the past twelve months. Some of the products that would be affected by the excise duty include beer, fuel, water, juice, cigarettes, and motorcycles.
KRA is on a roll to improve revenues collection, after continuous revenue deficits, and even lower collections as the pandemic lowered business activity. The agency recently launched a new team to enhance scrutiny on digital revenues and scrapped off tax exemptions on hiring helicopters, and importing cars.
Manufacturers Oppose the New Excise Duty
Manufactures say that the excise duty form annual inflation adjustments will lead to price instability, and further drive inflation. Further, there are fears that the implementation of the new tax will breed uncertainty, given the annual shifts in inflation, which would rock long term investment decisions. Consequently, manufactures urge Treasury to spread the charges over three years to give room for adjustments.
Business Daily reports that the tax was ill-timed, given the subdued demand, which will lower its impact on revenue collections.