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Giant multinational Coca-Cola is lobbying the Kenya government to
reduce excise duty from 10 per cent to 5 per cent in this year's budget.
In a pre-budget proposal to Finance Minister Amos Kimunya, the company's
East and Central Africa subsidiary says the current tax system is
both punitive, and inhibiting the sector's growth.
According to the firm's head of public policy, government and corporate
relations, Dr Nelson Githinji, Kenya must address issues such as reduction
of duties on raw materials if the manufacturing sector is to continue
sustaining the carbonated soft drinks market and exploit the region's
He says the existence of tariff anomalies, the need for tariff splits
and introduction of specific duty rates for items prone to under-invoicing
should also be scrutinised.
Coca-Cola is a major regional player in the carbonated soft drinks
In 2004, after intensive lobbying by the manufacturers of carbonated
soft drinks, the minister reduced excise duty from 15 per cent to
the current 10 per cent. The reduction says Dr Githinji, was a win-win
situation for the parties involved. The government, he argues benefitted
from increased tax revenues as a result of increased sales. Coca-Cola
benefitted from a reduction of the tax burden while consumers also
benefitted from the product's availability.
These gains are now being eroded by the increasing costs of production,
such as electricity charges attributed to global increases in fuel
costs, inflation, increased distribution cost due to poor infrastructure
and increased sugar prices globally as it is a major component in
the manufacture of carbonated soft drinks.
The proposal asks the government to focus on an economic stimulus
that will result in increased local and foreign direct investment
in the sector. This it says "will ultimately result in growth of the
sector which will in turn result in additional tax revenue mainly
in the form of corporate income taxes and consumption taxes."
Coca-Cola and its franchises continue to experience a steady decline
in profitability as a result of increased production costs brought
about by inflation and the high taxes.
The carbonated soft drinks sector operates with both an upstream supplier
chain, as well as a downstream industries and services which include
distribution, sales and marketing of its products. The affordability
and availability of the product in the market important for the sector.
One of the factors that determine affordability of the product is
"Lowering the rate of tax particularly in relation to exercise duties
and broadening the base is widely accepted as best practice in tax
policy," states the company's proposal to the minister. "It is for
this reason that we propose a reduction in the rate of excise duty
of carbonated soft drinks from the current rate of 10 per cent to
a lower rate of 5 per cent."
Also on the company's wish-list to Mr Kimunya is the lowering of the
sugar development levy. "The sugar development levy should be reduced
progressively on imported sugar for manufacture of goods for home
use from 7 per cent to 3 per cent this year 2007, 2 per cent in 2008,
1 per cent in the year 2009 and finally to 0 per cent in 2010. The
tax should not be levied on imported sugar for use to manufacture
goods for export."
Dr Githinji says, a sugar development levy of 7 per cent increases
the cost of production both for export and local markets. No other
country levies this charge, thus making Kenya's goods uncompetitive.
The levy is a fee charged by the government for the development of
the country's sugar industry which does not produce white refined
sugar, an essential raw material in the production of carbonated soft
drinks. Besides, any imported finished products containing sugar does
not attract the said levy.
The company says its day-to-day operations and strategic expansion
efforts are being hampered by by tax and cost related constraints.
Though the company strives to be more efficient by cutting down operational
costs, says Dr Githinji, inflationary adjustment coupled with the
current high cost of doing business inhibit the potential growth of
the industry in Kenya.
For this reason, he adds, a conducive and enabling tax policy is vital
to create a favourable environment to encourage more investment in
In his budget speech last June, Mr Kimunya said that for a long time
the sugar development levy had been passed on as a sugar tax on consumers.
He clarified that as a user charge, it should be levied on those who
use or directly benefit from the fund such as sugar industry players.
He proposed that amendment shifted the base from final consumers to
cane growers. This measure was to reduce the price of sugar for consumers,
while making sugar farmers vigilant on the utilisation of funds. However,
the proposal was not passed by parliament.
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