Treasury fears losing Ksh 133 Billion as Fuel and Beer Consumption Drops

The Kenyan Treasury has raised concerns over a potential loss of Sh 133.5 billion in projected revenue for the current financial year.

The culprits behind this financial hiccup? A decline in motor vehicle and fuel imports, coupled with lower-than-expected sales of sin goods like beer, spirits, and cosmetics.

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Treasury officials disclosed in the recently released 2023 Budget Review and Outlook Paper (BROP) that the initial target of Sh 2.58 trillion in ordinary revenue was based on projected tax receipts from the last fiscal year, which turned out to be significantly lower than anticipated.

“Given this revenue shortfall, the projections for FY 2023/24 have an estimated revenue risk of Sh133.5 billion,” Treasury officials wrote in the 2023 Budget Review and Outlook Paper (BROP), whose final copy was published late Tuesday.

The BROP revealed that excise duty, often dubbed ‘sin taxes,’ fell short by Sh29.47 billion, with the steepest decline among major tax categories. This underperformance is attributed to a drop in oil volumes, reduced motor vehicle imports, and lower deliveries of domestic excisable goods such as cosmetics, beer, and spirits.

“The shortfall in excise duty is primarily due to the decline in key sectors like oil, automotive, and the consumption of sin goods like beer and spirits.” the BROP states.

Manufacturers, who have been lobbying against increased taxes, have received a temporary reprieve. The freeze on taxes for alcohol and cigarettes comes after warnings that higher taxes would not only lead to lower revenues but also fuel illicit trade.

Speaking to Business Daily in August, Antony Mwangi, CEO of the Kenya Association of Manufacturers, emphasized the impact, saying, “For every bottle of beer sold for Sh190, Sh107 goes to the exchequer in the form of various taxes, leaving manufacturers with only Sh57 to cover their expenses.”

The BROP also highlighted the impact on other sectors, with cosmetics and beauty products attracting a 15 percent excise duty, and motor vehicle duties ranging between 20 and 35 percent.

To counteract the revenue risk, the Treasury and Kenya Revenue Authority (KRA) are implementing administrative measures, including the full roll-out of eTIMS, integration with telecom companies, revamped cargo scanning, efficient management of tax refunds, and improved debt management.

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“The National Treasury and KRA are confident that these measures, combined with tax adjustments in the Finance Act 2023, will strengthen revenue performance.”

However, concerns persist as the reduced sale of excisable goods is deemed detrimental, and the subdued growth in key sectors adds to the challenges faced by the economy.

As the government grapples with this revenue shortfall, the effectiveness of these measures and the overall economic recovery remain subjects of keen observation.