Executive summary

In a move aimed at realizing the objectives set out in "The Big Four" Agenda and to generate additional tax revenue, the Kenyan Government through the Finance Bill, 2018 has imposed an excise duty on the importation and manufacturing of sugar confectionary and chocolates at a rate of KES20 per kilogram (Kg), effective 1 July 2018.

The Kenya Revenue Authority (KRA) held consultative meetings with the manufacturers and importers of confectionery products and chocolate to educate them on excise duty compliance requirements as new licensees since they will be required to register early enough and be in a position to account for excise duty by 20 August 2018 and subsequent tax periods.

The new licensees will also be required to use the Excisable Goods Management System (EGMS) and EGMS regulations which require the affixing of excisable stamps on the finished products.

The affixing of these stamps was rolled out in phases across different excisable products. The KRA also clarified that all other excisable products including bottled water, juices, soda, other non-alcoholic beverages and cosmetics should implement the affixing of excise stamps effective 1 August 2018.

Excise stamps to be applied on confectionary and chocolate will cost KES0.5 each, applied on the stock keeping unit (SKU) or equivalent pack size.

Detailed discussion

Registration and licensing for new licensees

Manufacturers and importers of confectionary and chocolate will be required to register and get licensed in both I-Tax and EGMS like the other taxpayers in the market subject to excise duty. Below is the registration and licensing process for applicants:

• Applicants must complete a registration form in I-tax and once submitted, they will receive an acknowledgement receipt.
• Applicants then file a physical application indicating documentary requirements such as National Environment Management Authority (NEMA) approval, projection of quantities, Kenya Bureau of Standards (KEBS) approval, public health certification, and tax compliance certificate.
• Applicants' premises are subject to a physical inspection carried out by the Excise Department.
• Qualifying applicants may undergo an interview.
• A prescribed license fee is paid by the taxpayer.
• A security bond of a minimum of KES300,000 should be executed by the taxpayer.

Ruling on Excise Stamps Affixation

On 12 March 2018, Kenya's High Court nullified the affixation of excise stamps on bottled water, juices, soda, other non-alcoholic beverages and cosmetics on the basis that the regulations were enacted without adequate public participation which is unconstitutional.

The KRA appealed the ruling and a new ruling issued on 11 May 2018 gave the KRA the right to implement the notice requiring an excise stamp on other excisable goods. The KRA has already given registered manufacturers of other excisable products until 1 August to secure excise stamps for their products. The timing is considered sufficient to clear existing stocks.

Next steps for affected importers and manufacturers

• Manufacturers and importers of confectionary and chocolate should immediately register on i-Tax for the Excise Duty obligation and provide all the required documentation when doing the physical application for the license.
• Manufacturers and importers of bottled water, juices, soda, other non-alcoholic beverages and cosmetics should affix and account for excise duty effective 1 August 2018.
• Affected manufacturers should charge excise duty and affix excise stamps on excisable goods.
• Affected importers will pay excise duty on importation of the excisable goods and it is highly likely that they will include this cost in their pricing.

———————————————
CONTACTS

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

Ernst & Young (Kenya), Nairobi

• John Gikima
  john.gikima@ke.ey.com
• Stephen Ndegwa
  stephen.ndegwa@ke.ey.com
• Emmanuel Makheti
  emmanuel.makheti@ke.ey.com
• Esther Muteti
  esther.muteti@ke.ey.com

Ernst & Young (Uganda), Kampala

• Hadijah Nannyomo
  hadijah.nannyomo@ug.ey.com

Ernst & Young Advisory Services (Pty) Ltd., Africa ITS Leader, Johannesburg

• Marius Leivestad
  marius.leivestad@za.ey.com

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

• Rendani Neluvhalani
  rendani.mabel.neluvhalani@uk.ey.com
• Byron Thomas
  bthomas4@uk.ey.com

Ernst & Young LLP, Pan African Tax Desk, New York

• Silke Mattern
  silke.mattern@ey.com
• Dele A. Olaogun
  dele.olaogun@ey.com

———————————————
ATTACHMENT

PDF version of this Tax Alert