The Excise Duty Act, 2015 which takes effect on 1 December 2015, presents a new dawn for the administration of excise duty in Kenya through the legislation of a stand-alone act for administration and collection of excise duty. As envisioned in his budget speech, the Cabinet Secretary for National Treasury hopes to raise excise duty revenues by streamlining the administration process and hiking the excise duty rates for a number of products.
A key observation is the shift from an ad valorem basis for taxation to a specific basis which will result in lower value products suffering a comparatively higher rate of tax than before. This will impact lower income persons more, and is a blow to efforts made in creating an equitable tax field.
One novelty under the Act, is the inclusions of an inbuilt mechanism for automatically increasing the duty rates to cushion the taxman from the impact of inflation. However, this will be to the detriment of taxpayers who will suffer the double blow of increased prices as a result of inflation and taxation pressures.
The industries that will suffer the biggest increases in excise duty include tobacco, alcoholic and non-alcoholic beverages, low value second-hand motor vehicles dealers, and motorcycles dealers. Some traders will be forced to shoulder a portion of the excise duty to protect their sales resulting in lower margins. This will have a negative spiral effect on businesses that rely on these industries across the production and distribution chain.
Not all aspects of the Act are negative, the Act is simpler that the previous legislation which will make it easier for taxpayers to comply.
KPMG Tax Services has summarised the salient features of the Excise Duty Act, 2015 together with the potential impact that the Act will have. You can access the analysis by clicking on the link below.
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