Kenya losing Ksh71B in taxes annually on illicit alcohol – Report
Kenya is losing an average of Ksh71 billion in taxes annually due to the sale of illicit alcohol in the country, a new report has revealed.
According to the report by Euromonitor Consulting, the volume of illicit alcohol sales has recorded strong growth in value since 2020 to stand at Ksh67 billion.
The report shows that the popularity of illicit alcoholic beverages which are often sold at a lower price than legal drinks, has been fuelled by the non-compliance with tax and excise regulations.
"The expansion of illicit alcohol is gathering pace, both in volume and value, outstripping licit
volume growth and increasingly encroaching into the higher-value spirit market. Fiscal loss is primarily driven by mainstream and illicit manufacturers of distilled (spirits) alcohol attracted by its high profitability, efficient production and potential for easy sale into licit channels," the report notes.
"Illicit artisanal alcohol accounts for more than half of the total volume of illicit alcohol but the real
value of illicit trade lies in counterfeiting, smuggling and rapidly developing tax leakage."
The low price of illicit drinks, high taxes, costly raw materials to produce safe alcohol, as well as easy accessibility through street vendors, licensed liquor shops, grocery retailers, bars, and other hospitality outlets, has been cited as one of the reasons why illicit alcohol has become more affordable.
The main target for counterfeiting is the mass-market, high-volume brands that comprise a mix of mid-market and premium spirit brands followed by high-quality cider and beer. Illegal traders are also interested in ethanol, driven by increasing demand from illicit commercial alcohol manufacturers.
According to Quinton Walker, a senior consultant at Euromonitor, weak border patrols, widespread corruption, and unmanned entry points along Kenyan borders continue to provide a safe passage for illegal traders to conduct their business.
“Illicit ethanol traders have resorted to smuggling ethanol into the country taking advantage of rising local ethanol demand, price differences and higher ethanol availability in Tanzania and Uganda. The most preferred border routes are Isibania and Shimoni (Kenya-Tanzania), Mbale and Busia (Kenya-Uganda) and Moyale (Kenya-Ethiopia) are popular routes.” Mr Walker noted.
The avoidance of payment of high taxes and duties is the driving force behind much of the illicit trade but especially of tax leakage through highly profitable sales of under- or non-declared production.
The report proposes the enforcement of the law to make it illegal for any person who involves himself in the production, distribution, or sale through licensed or unlicensed outlets will be considered criminal activity and be subject to punishment by the law.
It also calls for more consumer awareness campaigns on the dangers of consumption of illegal alcohol highlighting the health effects on the human body. This will act as a deterrent and help reduce engagement in illicit alcohol production.