Tax relief on EABL’s Senator keg drops by US$192.5m in three years | Food Business Africa Magazine
KENYA – East African Breweries Plc (EABL) is reported to have lost around Sh23.8 billion (approx. 19.5m) in tax relief for its low-end beer brand Senator in three years after the government reduced the incentive, Business Daily reports.
The beer brand was launched in November 2004 and was promoted as a safe and affordable alternative to illicit alcohol that has killed hundreds and left scores of others blind.
EABL is the only brewer that qualified for the tax incentive after it complied with the relevant conditions, including the requirement that the ingredients used to make the beer be at least 75 percent content of the specified raw materials.
The law also required the beer to be packed in pasteurized containers of at least 30 liters–a rule that EABL complied with using metallic barrels, popularly known as kegs.
The government initially granted the beer an excise tax remission at the rate of 30 percent and raised it to 42 percent in 2005 after it was widely accepted among its target customers.
In 2006, the government effectively eliminated the excise tax on the Senator brand by raising the tax cut to 100 percent, which saw the beer grab an estimated 40 percent market share from illicit and traditional liquor.
However, in 2013, the tax remission was cut to 50 percent by the government in a bid to raise more taxes. This increase had a negative outcome for the taxman, EABL, and consumers of the beer, as the price rose by two-thirds to Sh50 (US$0.4) for the 330ml serving.
This introduction of the 50 percent excise duty on Senator Keg saw EABL cancel contracts with sorghum farmers and even stop beer production, noting that it was not financially viable. Within weeks, thousands of Senator outlets had been closed, and the sales of the product declined by over 80 percent.
The move also hurt the Treasury’s revenue target at the time, of raising Sh6.2 billion annually in excise taxes from the Senator beer brand.
The remission in June 2015 increased to 90 percent before the government reduced it to the current rate of 80 percent three years later.
A new report by the National Treasury shows that tax expenditure or the value of revenue foregone by the government due to tax reliefs on beer made from sorghum, millet, and cassava, dropped to a new low of Sh18.4 billion in the fiscal year ended June 2021.
With the reduction in the relief, total tax expenditure in respect to domestic excise duty also decreased substantially from Sh48.4 billion in 2017 to Sh31 billion (US$248.6m) in 2021.
The National Treasury has partly attributed the downward trend in tax expenditure on Keg beer to reduced demand for this low-end liquor.
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