It’s party time for cheap spirit makers

Published on 24/06/2009

By Jackson Okoth

Fierce competition for the low-end of the alcoholic drinks market could be in the offing as key players position to take advantage of the new excise tax regime.

In this year’s Budget, the Government proposed a change on excise duty on spirits from Sh7 per 1per cent of alcohol to Sh120 or 65 per cent whichever is higher.

Similarly, it proposed a change in excise duty on wines from Sh7 per 1per cent of alcohol to Sh70 or 50 per cent, whichever is higher.

The intention was to make portable wines and spirits more affordable to low income consumers who routinely resort to illicit, unhygienic and often dangerous brews.

But the application of the ad valorem tax rate of 65 per cent and 50 per cent on spirits and wines has not only resulted in a reduction in price of lowly produced wines and spirits, but has also pushed up the price of the more expensive ones.

“There has been an increase in the price of middle and top-end brands,” Ken Kariuki, External Affairs Director, East African Breweries Ltd (EABL)told The Standard. The ad valorem tax implies that the lower the production cost, the lower the tax, the arrangement being unfavourable to those using high capital intensive and more costly production methods.

New tax regime

For instance, while a 750 ml pack of Kenya Cane retails at Sh605 down from Sh675 six months ago, the price of a 750ml Richot brandy has increased from Sh940 to Sh1045.

“The above changes unless reviewed by the Minister will inevitably lead to further increases in the prices of wines & spirits, contrary to the expectations by the Minister, reads a recent public notice issued by National Alcohol and Beverages Association of Kenya.This reduction in excise on low-end wines and sprits is a complete turnaround of events three years ago when a hike in the tax regime forced one of the local brewers Keroche Industries to move into the beer market.

Distribution channels

EABL portfolio of John Walker, Smirnoff, Bond 7 and V and A have seen their retail prices adjusted upwards, effective June 12, to reflect the proposed excise tax regime.

The change has therefore made it possible for smaller players to manufacturer affordable and hygienic drinks. ” We are thinking of going back to the spirits market. The plant and all distribution channels are intact and can be revived,” said Tabitha Karanja, Managing Director, Keroche Industries Ltd.

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