In a bid to strengthen the nation’s revenue collection and align with international tax frameworks, the Kenyan government, through the Tax Laws (Amendment) Act of 2024, introduced new excise duty rates that apply to a wide range of imported and locally manufactured goods, as well as certain services. These changes, which came into effect on December 27, 2024, will have significant implications for businesses across various sectors, especially manufacturers, importers, and service providers.
The introduction of excise duties on an expanded list of goods and services, coupled with the new application requirements for excise licenses and certifications, requires businesses to be proactive in understanding these changes and complying with the new regulations. In this article, we will provide a detailed breakdown of the new excise duties, the goods and services affected, and the steps businesses must take to ensure compliance before the deadline for the first return and payment in January 2025.
What is Excise Duty?
Excise duty is an indirect tax levied on specific goods and services, typically those that are deemed non-essential, luxury, or harmful. The tax is applied to items such as alcohol, tobacco, fuel, and certain other goods. It is typically passed on to consumers, meaning that businesses that manufacture, import, or supply excisable goods and services collect the duty on behalf of the government.
In Kenya, excise duties are governed by the Excise Duty Act, and the recent amendments introduced through the Tax Laws (Amendment) Act, 2024, have expanded the scope of these duties. The purpose of these changes is to increase government revenue while ensuring that consumers pay for the social costs associated with certain goods and services.
New Excisable Goods and Services: What Has Changed?
The Tax Laws (Amendment) Act, 2024 has expanded the list of goods and services that attract excise duty. The newly introduced goods and services, as well as the revised duty rates, are detailed in the excise duty schedules under the act.
Excisable Goods:
Several imported goods now fall under the excise duty regime. These goods include both fully assembled products and certain components, with specific rates for each category. Below are some of the goods that are newly subject to excise duty:
- Imported Fully Assembled Electric Transformers and Parts (Tariff Heading 8504):
- Excise Duty Rate: 25% of the customs value, or KSh 500 per kilogram (whichever is higher).
- This rate applies to fully assembled electric transformers and related parts imported into the country.
- Imported Printing Ink (Tariff Heading 3215):
- Excise Duty Rate: 25% of the customs value.
- This applies to imported printing ink, excluding those originating from East African Community (EAC) Partner States that comply with the EAC Rules of Origin.
- Imported Ceramic Sinks, Wash Basins, Baths, and Other Sanitary Ware (Tariff Heading 6907):
- Excise Duty Rate: 36% of the customs value, or KSh 200 per kilogram (whichever is higher).
- This includes various ceramic sanitary items like sinks, wash basins, and bathtubs, which are now subject to excise duty.
- Imported Float Glass and Surface Ground Glass (Tariff Heading 7007):
- Excise Duty Rate: 36% of the customs value, or KSh 200 per kilogram (whichever is higher).
- This excise duty applies to float glass and other forms of glass, including those with specific coatings, when imported into Kenya.
- Imported Ceramic Tiles and Mosaics (Tariff Heading 6907):
- Excise Duty Rate: 2.5% of the customs value, or KSh 200 per square meter (whichever is higher).
- This applies to imported ceramic tiles and mosaics, including those used for flooring and wall coverings.
- Imported Saturated Polyester Polymers (Tariff Heading 3907):
- Excise Duty Rate: 20% of the customs value.
- Saturated polyester polymers, a key material in manufacturing plastic products, are now subject to excise duty.
- Imported Vinyl Acetate Polymers (Tariff Heading 3905):
- Excise Duty Rate: 20% of the customs value.
- This category includes various types of vinyl acetate polymers used in a range of manufacturing processes.
- Imported Paper or Paperboard (Tariff Heading 4811):
- Excise Duty Rate: 20% of the customs value, with some exclusions based on the origin of the goods.
- Paper and paperboard products, including those used for packaging and printing, now attract excise duty, unless they originate from EAC Partner States that adhere to the regional rules of origin.
Excisable Services:
In addition to goods, certain services have also been subjected to excise duty. Notably, services related to gambling, betting, and other forms of entertainment are now part of this category. These include:
- Fees Charged on Alcoholic Beverages, Betting, and Gaming Services:
- Excise Duty Rate: 10% of the service fee.
- This service fee applies to businesses involved in betting, gaming, and lotteries, as well as those supplying alcoholic beverages.
- Internet and Social Media Gambling Services:
- Excise Duty Rate: 15% on services related to internet-based gambling, including gaming platforms and social media betting services.
Requirements for Manufacturers, Importers, and Service Providers:
To comply with the new excise duty requirements, manufacturers, importers, and service providers must take several steps, including obtaining the necessary licenses and certificates.
Excise License and Import Certificate:
Manufacturers of excisable goods and suppliers of excisable services are required to apply for an Excise License from the Kenya Revenue Authority (KRA). Importers must also acquire an Import Certificate to enable the clearance of goods through customs.
The licensing and registration processes involve submitting applications to the KRA’s Tax Service Offices. Detailed forms and checklists for licensing and registration are available on the KRA website. It is essential for businesses to complete these applications promptly to avoid penalties.
Excise Duty Returns:
The Tax Laws (Amendment) Act mandates that excise duty returns must be submitted on or before the 20th of each month following the month in which the tax was collected. For the first payment under the new regulations, manufacturers, importers, and service providers must submit their excise duty returns and make payments by January 20, 2025.
The KRA expects businesses to remit the excise tax they have collected from the sale of goods and services within the stipulated timeframe. Failure to meet this deadline can result in penalties, including fines and interest on the outstanding tax amount.
Why the Changes Are Significant:
These new excise duty measures reflect the Kenyan government’s continued efforts to increase tax revenues while also expanding the scope of taxes on imported and locally manufactured goods. The government hopes that these changes will help bridge the budgetary deficit and provide the necessary funding for critical infrastructure and social programs.
For businesses, the new excise duties may result in higher operating costs, particularly for importers of goods subject to these taxes. Importers will need to account for the excise duty when pricing their products, which could lead to increased consumer prices. Manufacturers who rely on imported raw materials affected by the new duties may also face higher production costs.
What Businesses Need to Do:
Businesses should ensure that they are fully compliant with the new excise duty regulations by taking the following actions:
- Obtain the Necessary Licenses: Apply for the excise licenses and import certificates required by the KRA.
- Adjust Pricing: Reevaluate pricing strategies to incorporate the additional excise duty costs.
- Ensure Timely Tax Remittance: Submit excise duty returns on time to avoid penalties, starting with the first return due on January 20, 2025.
- Consult KRA: Seek assistance from the KRA if there are any uncertainties regarding compliance with the new excise duty regulations.
The Tax Laws (Amendment) Act, 2024 introduces significant changes to Kenya’s excise duty framework, expanding the scope of excise duty to cover more goods and services. These changes will affect a wide range of businesses, from manufacturers and importers to service providers in industries such as betting and gaming.
With the deadline for the first excise duty returns fast approaching, businesses need to ensure that they comply with the new regulations to avoid penalties. By understanding the new excise duties and taking the necessary steps to register and remit taxes, businesses can navigate this regulatory change smoothly and contribute to Kenya’s growing economy.