Tax AlertCommissioner General adjusts specifi c excise duty rates for infl ation

The CG has adjusted excise duty rates upwards by 5.15% on all goods that are subject to specific excise duty rate.

The inflationary adjustment was introduced following the departure from an ad valorem excise duty system where duty was computed as a percentage of the value of the excisable product. The ad valorem system ensured that excise duty moves in tandem with inflation since the duty is based on the price of excisable products.

The Excise Duty Act, 2015 (the Excise Act), introduced specific excise duty system for most products except cosmetics, food supplements and motor vehicles. The inflationary adjustment ensures that the duty does not lag behind as price levels increase due to inflation.

July 2019

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The inflationary adjustment formula is prescribed under the First Schedule of the Excise Act. The formula prescribes an adjustment of specific excise duty rates based on the average rate of monthly inflation of the preceding Government fiscal year. It is on this basis that the CG has prescribed new rates of excise duty.

A background to the 2018 adjustmentThe Commissioner General on 2 July 2018 published the Excise duty (Adjustments of Rates for Inflation) Regulations (Legal Notice 164 of 2018) which rates were effective from 1 August 2018.

However, these Regulations were annulled by Parliament on the basis that there was no

The Commissioner General (CG) of the Kenya Revenue Authority (KRA) has published Legal Notice No.109 prescribing new specific rates of excise duty for various excisable products. The Legal Notice which was published on 9 July, 2019 is in accordance with Section 10 of the Excise Duty Act, 2015 which empowers the CG to adjust the specific rates of excise duty in tandem with inflationary trends.

public participation in enacting the Regulations. The CG regularized the omission identified by Parliament by taking the proposed changes through public participation and issued a new legal notice i.e. Legal Notice No. 239 on 11 December 2018 prescribing new specific excise duty rates for excisable goods to keep in tandem with inflation. These adjustments were effective from 11 December 2018.

Petroleum products It is worth noting that during last year’s adjustment petroleum products, which also attract excise duty at specific rates, were not affected by the adjustment.

This was attributed to the increase in price as a result of the introduction of VAT on these products in September 2018 with the expiry of the transitional VAT exemption.

Petroleum products have this year not been spared the inflationary adjustment, which is bound to have a multiplier effect on the cost of living.

Important observationsUnder the Finance Bill, 2019 the Cabinet Secretary National Treasury has proposed to increase excise duty rates on tobacco products, wines and spirits by 15%. It is not clear whether the 15% will take account of the 5.15% inflation adjustment or the sector should expect effectively a 20% increase.

We note that LN 109 is dated 1 July 2019, it was published on 9 July 2019 stating the new rates are effective from 1 July 2019 and the LN was made available to the general public on 12 July 2019.

Find in the following page a summary of the products affected by the inflationary adjustment.

In our view this creates confusion as the LN suggests the new rates are to apply retrospectively, which is bound to present compliance challenges to businesses.

Please feel free to contact your usual PwC contact or any of the team herein should you wish to discuss this or any other matter.

Tariff Description Current Rate ofExcise Duty (KSh.)

New Rate of Excise Duty

(KSh.)Condensates per 1000 litres @ 20 deg. C 6,225.00 6,545.59Motor spirit (gasoline) regular per 1000 litres @ 20 deg. C 19,505.00 20,509.51Motor spirit (gasoline) premium per 1000 litres @ 20 deg. C 19,895.00 20,919.59Aviation spirit per 1000 litres @ 20 deg. C 19,895.00 20,919.59Spirit type jet fuel per 100 litres @ 20 deg. C 19,895.00 20,919.59Special boiling point spirit and white spirit per 1000 litres @ 20 deg. C 8,500.00 8,937.75Other light oils and preparations per 1000 litres @ 20 deg. C 8,500.00 8,937.75

Partly refined (including topped crude) per 1000 litres @ 20 deg. C 1,450.00 1,524.68Kerosene type jet fuel per 1000 1itres @ 20 deg. C 5,755.00 6,051.38Illuminating kerosene 10,305.00 10,835.70Other medium oils and preparations per 1000 1itres @ 20 deg. C 5,300.00 5,572.95Gas oil (automotive, light, amber for high speed engines) per 1000 1itres @20 deg. C 10,305.00 10,835.71Diesel oil (industrial heavy,black, for low speed marine and stationery engines) per 1000 litres @ 20 deg. C 3,700.00 3,890.55

Other gas oils per 1000 litres @ 20 deg. C 6,300.00 6,624.45Residual fuel oils (marine, furnace and similar fuel oils) of a kinematic viscosity of 125 centistokes per 1000 1itres @ 20 deg. C 300.00 315.45

Residual fuel oils (marine,furnace and similar fuel oils) of akinematic viscosity of 180 centistokes per 1000 1itres @ 20 deg. C 600.00 630.90

Residual fuel oils (marine,furnace and similar fuel oils) of a kinematic viscosity of 280centistokes per 1000 1itres @ 20 deg. C 600.00 630.90

Other residual fuels oils per 1000 1itres @ 20 deg. C 600.00 630.90Fruit juices (including grape must), and vegetable juices,unfermented and not containing added spirit,whether or not containing added sugar or othersweetening matter Shs. 10.50 per litre Shs. 11.04 per litre

Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices Shs. 5.20 per litre Shs. 5.47 per litre

Beer, cider, perry, mead,opaque beer and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of alcoholic strength not exceeding 10% Shs. 105.20 per litre Shs. 110.62 per litre

Powdered beer (per kg) Shs. 105.20 per kg Shs. 110.62 per kgWines including fortified wines, and other alcoholic beverages obtained by fermentation of fruits (per litre) Shs. 157.80 per litre Shs. 165.93 per litre

Spirits of undenatured ethyl alcohol; spirits liqueurs and other spirituous beverages of alcoholicstrength exceeding 10% (per litre) Shs. 210.40 per litre Shs. 221.24 per litre

Cigars, cheroots, cigarillos,containing tobacco or tobacco substitutes (per kg) Shs. 10,520.00 per kg Shs. 11,061.78 per kgElectronic cigarettes (per unit) Shs. 3,156.00 per unit Shs. 3,318.53 per unitCartridge for use in electronic cigarettes (per unit) Shs. 2,104.00 per unit Shs. 2,212.36 per unitCigarette with filters (hinge lid and soft cap) per mille (plain cigarettes) Shs. 2,630.00 per

mille Shs. 2,765.45 per mille

Cigarettes without filters (per mille) Shs. 1,893.00 per mille Shs. 1,990.49 per mille

Other manufactured tobacco and manufactured tobaccosubstitutes; “homogenous”and “reconstituted tobacco”;tobacco extracts andessences (per kg) Shs. 7,364.00 per kg Shs. 7,743.25 per kg

Motor cycles of tariff no. 87.11 other than motor cycle ambulances and locally assembled motor cycles (per unit)

Shs. 10,520.00 per unit Shs. 11,061.78 per unit

This publication has been prepared as general information on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.

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