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Why your favourite bottle of whiskey will cost more after Rotich budget

Alcohol consumers are set to pay more for their favourite drinks after the government increased tax on spirits by 14.3 per cent and increased duty on low-cost beers such as EABL’s Senator Keg.

Treasury secretary Henry Rotich Thursday announced that spirits, whose customer base has grown rapidly in the past five years, will be subject to an excise tax of Sh200 per litre, an increase of Sh25 from the current rate.

Low- cost beers manufactured using sorghum, millet or cassava will enjoy a tax remission of 80 per cent, down from 90 per cent. This means beer makers will pay a duty of 20 per cent on the expected tax from beer, up from the current 10 per cent.

“While the taxation of beer has not changed, the inflation adjustment that will be effected from 1st July this year will increase government revenue in line with inflation,” he said.

Manufactures of low-cost beers from sorghum, millet or cassava were in 2015 handed a reprieve after the tax remission was increased from 50 per cent to 90 per cent through the Alcoholic Drinks Control (Amendment) Act.

MAXIMUM TAXATION

Last year’s Finance Act repealed this section of the law, forcing brewers to apply to the Treasury to continue enjoying the remission.

Mr Rotich has now moved to ease administration of this duty, while reducing it, setting the stage for brewers to pass on the extra charge to consumers.

The commercial viability of Senator Keg is highly dependent on protection from maximum taxation since its consumers react fast and negatively to price adjustments.

Mr Rotich said the new tax measures are meant to discourage the consumption of illicit drinks even as he went in for a slice of the proceeds from high value spirits whose “consumption…has increased tremendously.”

EABL, the country’s leading brewer, saw sales of its spirits jump 26 per cent in the six months to September as Kenyans with higher incomes embraced brands like Johnnie Walker, Smirnoff and Ciroc.

The brewer announced a Sh900 million investment in a new spirits line to grow this segment as its mainstream beer continues to underperform due to higher taxes.

Andrew Cowan, the firm’s chief executive, said increased taxation has dampened demand through successive price increments and that management would lobby government to devise a predictable tax environment.

“Because Kenya contributes over 70 per cent of EABL’s profits, the prevailing tax regime in the region’s biggest economy has significantly affected the group’s earnings,” Mr Cohan said in January.