Recent increase in excise duty rates

The Excise Duty Act of 2015 (Act) introduced specific excise duty rates for goods with the aim of simplifying the excise tax regime. As a result of the specific excise duty rates, there was a risk that the rates may lag behind the rate of increases in the prices of goods. To counter this risk, the Act introduced a mechanism for annual adjustments of the specific excise duty rates to capture annual inflation. The Act empowers the Kenya Revenue Authority (KRA), through the Cabinet Secretary of the National Treasury, to adjust the excise duty rates by not more than 10%, subject to National Assembly approval.

24 Oct 2022 2 min read Tax & Exchange Control Alert Article

On 1 September 2022, the KRA published a notice informing the public of proposed adjustments for inflation to excise duty rates of certain goods. Members of the public were invited to submit their views on the proposed adjustments before they could be gazetted into law. The goods that were to be subject to the proposed inflation adjustment and the proposed new rate of excise duty can be seen here.

Following the public participation, on 3 October 2022, KRA gazetted Legal Notice No. 176 prescribing the adjusted excise duty rates with effect from the 1 October 2022. The legal notice setting out the affected goods can be found here.

We note that in the gazetted Legal Notice No. 176, certain items, particularly petroleum products, that had been proposed for inflation adjustment in the notice published on 1 September 2022 have been excluded. These include goods such as condensates, motor spirit (gasoline) regular, motor spirit (gasoline) premium, aviation spirit, spirit type jet fuel, special boiling point spirit and white spirit, light oils and preparations, partly refined (including topped crude), kerosene type jet fuel, illuminating kerosene, gas oil (automotive, light, amber for high-speed engines), diesel oil (industrial heavy, black, for low-speed marine and stationery engines) and residual fuel oils.

The exclusion of petroleum products is an indication that while the KRA remains aggressive in its quest to raise more revenue for the Government, the Government is conscious of not burdening the public with excessive taxes on petroleum products. The Commissioner General of the KRA stated in a press release that the KRA had opted to exempt petroleum products from the inflation adjustment because of the current high prices of petroleum products. It is, however, not clear how the Commissioner exercised the power to exempt petroleum products from the inflationary adjustment when the power to exempt only comes into force on 1 January 2023, as provided for in the Finance Act of 2022.

In the past, some attempts at adjusting excise duty rates for inflation have been nullified because of insufficient public participation. However, it appears that for the recent inflation adjustment, sufficient time was allocated for public participation, and we anticipate that the Commissioner General of the KRA undertook the requisite steps before gazetting the excise duty inflation adjustments.

We will continue to monitor developments, but should you have any questions, please reach out us.

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