PwC Warns New Tax Notice May Cause Confusion on Effective Date

Finance consulting firm Pricewaterhouse Coopers (PwC) is warning of a possible confusion that could be caused by Legal Notice No. 217 issued by KRA Commissioner-General (CG), Githii Mburu.

The notice that seeks to adjust excise duty levied on various products was published on November 2, 2021, but is dated 15, October 2021 and does not clearly define its effective date.

In a Tax Alert published by PwC’s tax consultants, they warn that “this is likely to create confusion as the effective date could be subject to varying interpretation, which is bound to present compliance challenges to businesses and disputes with the tax authority.”

Through the notice, the CG reviewed upwards the excise duty rates for specific products, excluding petroleum products, to take into account the rate of inflation for the financial year 2020/2021 which is averaged at 4.97%.

The inflationary adjustment was introduced to ensure that the duty does not lag as price levels increase due to inflation. This was as a result of the Excise Duty Act, 2015 (the Excise Act), introducing specific excise duty rates for most products except cosmetics, food supplements and motor vehicles.

The new rates published by the CG  are based on the inflationary adjustment formula which is prescribed in the Excise Act. It stipulates specific excise duty rates based on the average rate of monthly inflation of the preceding Government fiscal year.

Affected products include fruit and vegetable juices, bottled water, beer and ciders, powdered beer, wines and alcohol spirits. Others are cigarettes, cigars and tobacco products, electronic cigarettes and cartridges used in electronic cigarettes, and other manufactured tobacco substitutes.

The new rates will also apply to imported motorcycles except for motorcycle ambulances, imported sugar confectionery, and white chocolate.

However, a notable exception from Legal Notice No. 217 is an excise inflation adjustment on petroleum products. This follows a petition filed at the High Court in Nairobi seeking to block KRA from adjusting excise duty on petroleum products through a public notice issued on August 10, 2021. The court issued conservatory orders on September 27, 2021, with respect to petroleum products, pending the hearing and determination of the matter.