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October 9, 2020 Kenya adjusts specific excise duty rates for inflation Background Specific rates of excise duty were widely adopted under Kenya’s simplified excise tax regime introduced through the Excise Duty Act in 2015 following the repeal of Customs & Excise Act, Cap 472. With the wide adoption of specific rates of excise duty, the Act also adopted indexation of the specific rates to adjust for the inflationary erosion of collected taxes. Despite the indexation of the rates, the manner in which the new rates were to be adjusted has been reviewed and revised since the Act took effect in December 2015. In 2017, the adjustment was initially proposed to be made once every two years. This proposal was reversed in 2018 to provide for an amendment frequency of once every year. The first adjustment of the specific rates was carried out in December 2018 following application of the applied adjustment formula indicated below. New rate = A(1+B) where:
Pursuant to Section 10 of the Excise Duty Act, which empowers the Commissioner to adjust the specific rate of excise duty to take into account inflation in accordance with the adjustment formula, the Commissioner General, through Legal Notice No.194 dated 25 September 2020, published revised rates of excise duty applicable on excisable goods. The new rates, which take effect on 1 October 2020, are based on an average inflation rate of 4.94%. Specific excise duty rates were last amended vide Legal Notice 109 of 2019 which was effective 1 July 2019 and considered average inflation rate of 5.15%. The current amendments will result in a general increase in prices of the excisable goods and reduction in consumption of the goods (where demand for those goods is elastic). The following tables set forth the new excise duty rates. Petroleum products The new rates are reflected in the pump price following the Energy Petroleum & Regulatory Authority adjustment of the maximum pump prices of Super Petrol (PMS), Automotive Diesel (AGO) and Kerosene (DPK). The pump prices take into account the inflation adjustment on specific excise rates applicable on petroleum products with effect from 3 October 2020.
Beverage products
Tobacco and related products
Other excisable products
The 2020 Finance Act amended the Excise Duty Act provision relating to annual inflation adjustment by requiring the Commissioner to seek an approval from the Cabinet Secretary for the National Treasury and Planning in order to adjust the specific rates of duty. Thereafter the adjustment notice will be set forth before the National Assembly within 7 days of publication and approved by the Assembly within 28 days. This amendment will come into effect in January 2021. The next revision of specific rates based on inflation shall be published on 1 October 2021 based on procedures per the above amendment and the average inflation rates for the current financial year. Despite this, the Cabinet Secretary is empowered under Section 18 of the Excise Duty Act to vary the excise duty rates subject to a maximum of 10%. Endnotes 1. Mille: Per 1000 sticks of cigarettes. ___________________________________________________________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young (Kenya), Nairobi
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York
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