Tobacco companies oppose the proposal to increase tax on cigarettes, which could see smokers pay Sh7 the treasury for every ten shillings spent on their products.
The Institute of Legislative Affairs (ILA) suggests that an increase in treasury taxes on cigarettes, so the effective rate of 70 percent, recommended at the international level the World Health Organization (WHO).
“Taxes make up 55 percent of the price of cigarettes in Kenya, which is much lower than the WHO-recommended threshold of 70 percent,” said ILA last week, referring to countries such as Thailand, at the pre-budget hearings organized by the Institute of Economic Affairs.
British American Tobacco (BAT) Kenya and Mastermind Tobacco against the proposal arguing it would lead to an increase cigarette smuggling by tax evaders.
“This issue should be considered in the context of the consequences for the entire tobacco industry.
Experience in other countries, Canada being one such example, showed that these initiatives lead to significant increases in consumer prices leads to an increase in illegal trade, “said BAT East and Central Africa head of corporate and regulatory policy, Joe Muganda.” But this is not good to government revenue?”
Mastermind Tobacco representative Josh Kirimania, said the new proposal is discriminatory against the majority of low-income smokers. “It is unfair to charge the same tax for people who are at the bottom of the market those at the top,” said Mr. Kirimania.
He said that the Mastermind Tobacco is lobbying the Treasury to a change of heart and return to the old system, that the categories of products based on their characteristics, arguing that it is the norm for other industries - and the tobacco industry should be no exception. Malt beer and spirits are taxed differently in the alcohol industry.
The ILA executive director, Vincent Kimosop, said the proposal is based on research conducted at the Sportsman brand as it is the most popular on the market.
Mr. Kimosop said the Treasury would have the following rights, as the Tobacco Act 2007 allows the Minister of Finance to increase taxes on cigarettes.
“The minister is now responsible for finance shall fiscal policy, where appropriate, policy rates on tobacco and tobacco products so as to promote the objectives of this Act,” the law of the state.
Processes for the production, sale and manufacture of tobacco products are regulated by law.
To ensure that the effective tax rate is not reduced, there is a proposal to link the tax to inflation, which suggests that the rate will be adjusted in tandem with changes in the value of goods.
Mr. Kimosop said inflation rose from the amendments to the Finance Bill were made in June when the budget was read, and, as such, the tax rate used was then undermined by inflation.
In June, inflation was 14.48 percent, but rose to 18.93 percent last month.
The tax rate proposed by the Treasury was the largest of R1, 200 per 1,000 cigarettes sticks or 35 percent of the retail price.
By indexing charges, the figure would edge up to about Sh1, 400 per thousand sticks, said Mr. Kimosop.
AMP proposal would apply to all tobacco products, which differs from the past, where the government taxed in accordance with the physical characteristics of different brands.
The old tax system continues to be used until the president handles the financial bill into law and AMP proposals can be implemented only after the budget is read in June
