For a long time, the excise tax basket of tax officials was nearly filled with groups of individuals who could barely resist a rush of nicotine or a sip of the suds.
Because the excise taxes were mainly taken from cigarettes and alcohol, they were called “sin taxes.” But the government has since found a new cash cow for indirect taxes.
The latest economic survey by the Kenya National Bureau of Statistics (KNBS) shows that collections from financial transactions and airtime have overtaken “sin taxes” to become the main source of excise duties, as the government expands the basket of excise products beyond alcohol and tobacco. .
Data from KNBS shows that in the 2022/24 financial year, customs duties from financial transactions and airtime amounted to Sh80 billion compared to Sh62.66 billion from alcoholic beverages and cigarettes.
A large portion of financial transactions involves fees on mobile money transfers such as Safaricom's M-Pesa through which more than half of the country's economy is transacted.
Excise tax collections from financial transactions and airtime for the first time exceeded those on alcohol and cigarettes in the year to June 2022, and the gap has widened since then with increased activity related to money transfers and telecommunications services.
Analysis of data from the National Treasury shows that excise taxes on financial transactions and airtime now account for 47.9 per cent of total collections compared to 37.5 per cent on alcohol and tobacco products.
Indirect taxes tend to target harmful products such as alcohol and cigarettes, not only to discourage people from engaging in these activities, but also to increase taxes on consumers who would not be afraid of the higher cost.
Although excise duty collection on beer increased last year, there are also concerns that consumption per unit could fall as consumers turn to cheaper alternatives, including counterfeit drinks.
Likewise, a combination of health awareness campaigns and punitive regulations and taxes has made smoking uncommon.
As revenue sources from tobacco and alcohol dried up, the government turned to new areas such as financial transactions and airtime to raise revenues to fund its expanding budget.
Tax expert Robert Warweru believes this points to the crucial role that financial inclusion plays.
“I also believe this demonstrates the resilient nature of demand for tobacco and cigarettes, which we hope will guide our future tax and fiscal policy,” Mr Waruweru said.
“This also shows the diminishing disposable income of individuals and highlights the need to review the PAYE (Pay As You Earn) structure,” he added.
In the proposed revenue-raising measures for the 2024/25 fiscal year, which begins in July, the government expects to collect more financial and spirits transactions through new amendments.
Customs duties on financial transaction fees, including banking fees, will rise to 20 percent from the current 15 percent if the National Assembly approves the Treasury's proposals.
The Finance Bill 2024 also proposed higher taxes on spirits by applying duty based on pure alcohol content.
Excise duties on tobacco products have been increased as the government moves to align taxes on cigarettes with filters with those without.
“Excise duty is a tax imposed by the government on certain products with negative externalities to discourage their consumption. In addition, excise duty is also imposed on other goods and services to generate revenue.
In the medium term, the administration of President William Ruto has indicated its intention to review customs duties imposed on petroleum products, betting, and gambling. Imposing indirect duties on coal and other commodities with harmful health effects, such as sugar.
The indirect tax basket has evolved since the 1980s and 1990s when it was dominated by alcohol and tobacco products at 80 percent.
But since its introduction in 2015, financial transactions have become the single largest contributor to the tariff pot, with the Kenya Revenue Authority (KRA) collecting Sh45.19 billion from mobile money services and airtime.
Broadcast and financial transaction taxes reflect Safaricom's revenue performance on phone services and M-Pesa for the financial year ending March 2024.
M-Pesa revenues grew 19.5% to Sh140 billion while data revenues rose 25% to 67.4%. Voice revenue fell 0.6 percent to Sh80.5 billion while messaging revenue rose 8.3 percent to Sh12.3 billion.
Economic Survey 2024 data published by the Statistics Bureau shows that the government collected indirect fees worth Sh45.19 billion from financial transactions in the 2022/23 financial year, an increase of 10.5 percent from the Sh40.89 billion collected in the previous period. .
The tariffs, known as the Six Taxes, have long been imposed on luxury and harmful products such as alcohol, cigarettes, gambling, juice, cars, soft drinks and cosmetics.
However, the government has expanded the list of selective goods to include broadcasting, financial transactions, fuel and internet data services.
In the 2022/23 financial year, beer collections recovered from a decline of Sh27.35 billion to Sh32.09 billion.
Excise duty on wine and spirits, another category of alcoholic beverages that includes vodka, whiskey and gin, also fell marginally to Sh18.9 billion as sales fell due to higher taxes leading to lower imports and production.
