As the budget day draws closer, it is important to remember that government revenue is from taxes. Government in itself has nothing to offer to any one except what it takes from you, and your businesses. In the global scenario where the dangers of foreign aid are becoming increasingly evident, expanding the taxation base remains the key to economic independence. Kenya’s high alcohol taxes and banning of traditional liquors contributed to “kumi kumi” deaths because the un-supplied market resorted to use of industrial alcohol as short cut.
The lifting of the ban on traditional liquors is set to unleash new alcohol wars in Kenya. Not long time ago, we witnessed tight competition between South Africa Breweries and Kenya breweries over the Kenyan market, at some point the guest brewery had to resort to a tactical retreat. By lifting the ban on traditional liquors, the government expects to tap into an estimated 80 percent alcohol market that has largely been underground.
Women are said to be the majority shareholders in the now legalized “underground breweries.” A number of Kenyan elites are beneficiaries of this industry, and ignoring other political factors, one ought to congratulate the government for taking the right step. Traditional liquor industry is likely to drive up demand for, sorghum, honey, sugarcane, sap from palm trees, pineapples, tea leaves, bananas and dried yeast. The corruption index among the administration chain is likely to go down, because no more protection fees are required to prepare “traditional brews”.
The biggest challenge however goes to the very same government in terms of revenue collection. It is very clear that the government’s fight against “illicit brews” failed miserably due to poor enforcement of its own policy which is largely attributable to the fact that the government taxed highly that which it regarded as legal. Excise taxes make up 18 percent of total revenue to the government. Formally manufactured beers, wines and spirits contributed close to 60 percent of the revenue generated from excise tax. High taxes played a major role in driving Kenyans to the underground market. Will the government succeed in formalizing the traditional brew sector?
The cost of evading and bribing security forces might as well act as a huge incentive for operators to seek legal permits and licences to brew and distribute traditional liquor. The question of standards will however remain a big challenge not unless new players (read elites) join this business. If this happens, the biggest losers in the legalized field will be women who have over the years learnt the art of “co-existing” with a bad law that had banned African traditional liquors. A government driven option would be to revise the taxation regime for purposes of spreading the burden across a larger sector while giving more incentives to allow new players into the market.
The competition between high technology brewers that currently pay huge amounts of tax with those that operate from individual’s kitchen, backyard using pots, tins, drums and marketing by word of mouth will be interesting to observe. It is up to Kenyan entrepreneurs to upgrade this industry to meet high standards of hygiene and global marketability or face another round of banning when “kumi kumi” terror strikes again.
It is urgent that the government lowers taxes with strategic objective of promoting traditional alcohol brands and those of existing industries to enable them penetrate the new 440 million people market in COMESA. Improved upon busaa, muratina and other local brews might soon meet in the bar in Nairobi or Kinshasa if the 75 percent tax on average beer is spread across the larger market to lower prices.
This article was first published in Business Daily, a publication of Nation Media Group
By James Shikwati
Mr. Shikwati is the Director of Inter Region Economic Network
Comment on this article!