Ken Kariuki: Maximize Alcohol Revenue Collection

*Article as it appeared on Business Daily on Thursday May 23, 2013.
Unfortunately, all too often when budget time nears, Kenyan consumers have learnt to claw their couches in anticipation of what has become ” acceptable” that excise tax for beer and spirits will raise making them dig deeper and harder for their hard earned cash. ┬áThe non imbibers will be seen clapping their hands in acclamation for a job well done. But perhaps it’s time to stop and think.

Does the perpetual increase in alcohol excise really make a positive difference or does it carry more ” collateral” damage then we may imagine? Will higher prices discourage excessive consumption and reduce volumes for those that seemingly re route domestic budgets to the nearest pubs?

To address these pertinent elements we must first resolve some assumptions that society has made us believe.

First, alcohol is a natural and legitimate part of a healthy, balanced lifestyle when consumed in moderation. Not every alcohol consumer is a manic alcoholic who’s only need is to get intoxicated and act stupid. No…the large majority of consumers are actually responsible drinkers who enjoy the taste and flavor of beer and spirits as they unwind following a long day. Therefore strategies to address alcohol related harm must recognize this vast majority as well as the premises that sell alcohol responsibly.

However, we know that alcohol misuse is a major social and health challenge in many countries. We should therefore support targeted, evidence based initiatives to prevent and reduce alcohol related harm rather than general policies that affect all consumers whether they misuse alcohol or not. All players in the industry, local or part of an international organization have strong international codes of conduct that mandate dissemination of responsible drinking messaging.

For the past 5 years the ministry of finance has been very consistent in increasing excise tax for both beer and spirits in Kenya. This has earned us the rather un enviable title as the country with the highest alcohol excise tax in Africa. A closer look at the market reveals a number of consequences that may not have been very apparent.

Second, it is evident that the overall beer market in Kenya is at best stagnant. The performance of some of the beer companies is evidence of this. At Ksh 100 for the cheapest available beer is certainly expensive by any standards. In South Africa the selling price of a beer is approximately Ksh 50 due to a lower tax regime. South African beer consumption is close to ten times what Kenya does.

Some years back when I was practicing corporate affairs practitioner, we hired reputable economists to investigate at what optimum level government should charge excise in order to maximize its revenue and not stifle alcohol growth. The rate was established at Ksh 35 per liter. This rate is therefore double what the government is currently charging and therefore curtails growth. The same is evident for spirits.

Thirdly, taxation has proven not to be an effective way of reducing misuse because it penalizes responsible drinkers and does not address the underlying causes of alcohol related harm. Because of the high cost of alcohol excise, several international brewing and distilling companies who would have wanted to get into the market have shied away. A comparative analysis of excise in africa is evidence of the extremely high excise tax Kenya imposes on alcohol. Needless to say that the alcohol industry employs thousands of people, as the plants are very labour intensive. These will obviously have a very positive knock on effect in the economy.

There are many laws and regulations related to alcohol in place. Before new laws and extra taxes are introduced a clear assessment on the effectiveness of such a measure should be made and applicable existing laws should be vigorously enforced. I believe it is not the role of government to set prices for consumers. Minimum pricing is certainly not an effective way of reducing misuse because it penalizes responsible drinkers and there is no proven relationship between increasing the price and tackling alcohol abuse.

Thirdly non-commercial/illicit alcohol create a serious health risk, leads to unfair competition and withholds the government of billions of shilling in lost taxes. When setting policies for commercial alcohol, governments must be aware, of the impact such policies may have on the production and consumption of non-commercial and illicit alcohol.

My appeal to the incoming Cabinet Secretary is please spare the consumers further excise increase and instead help us spur the economy by growing the formal, responsible alcohol industry in Kenya by retaining or better still reducing the current rates so that the positive knock on effect of this can be harnessed by farmers, traders and indeed the challenged consumer. The billions of extra tax money can be obtained by finally fighting the illicit industry and moving these consumers to the formal, responsible and strongly regulated alcohol industry.

Ken N Kariuki

The writer is a corporate affairs consultant at Khweza Consulting Ltd

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