Interesting name for a tax right? Imagine if you were to be taxed every time you sin. I wonder whether we would have any sinners. This brings in another question, who would receive that tax, church? Government? But no, am not referring to that kind of tax. Sin tax is what we refer to as Excise Duty. It is one of the oldest taxes levied worldwide on selected products that are considered harmful to society and individuals. Excise duty is a duty that is imposed on goods and services manufactured in Kenya or imported into Kenya and specified in the First Schedule to the Excise Duty Act, 2015.
These goods include; Tobacco and tobacco products, beer, wines and spirits, soft drinks such as juices, soda and other non- alcoholic beverages, bottled water, sugar confectioneries and chocolates, motor vehicles, petroleum, cosmetics etc. The services include; mobile money transfer services, money transfer services by banks and other financial institutions, data services etc.
It is a way protecting people from harming their health by abusing substances such as tobacco and alcohol. Also, it is to correct the negative externalities arising from the consumption of these products. Smoking cigarettes for example, or excessive drinking of alcohol is harmful not only to the person consuming but also to the society at large. The high taxes are therefore supposed to ensure that the individuals internalize the cost to society of their consuming these products. We also have to consider the environmental concerns; issues of pollution hence tax on hydrocarbon oil, plastic shopping bags. Most important to note is that funds are used for rehab and treatment of patients as a direct or indirect result of excisable goods.
Some of the common characteristics of excisable goods and services are; they are luxurious, low price elasticity, limited consumption, addictive and also have negative desired effects. So the taxes levied at relatively high rates. The fact that they have low price elasticity means that there is minimum shifting of consumer purchases when prices change.
Taxation as per the law
There are two rates of excise duty; Specific Duty Rate (specific amount of tax is charged per unit of measure) and Advalorem Duty Rate (a percentage rate on the value).
Excise Duty is a consumption tax and is therefore charged on deliveries. It is accounted for by the manufacturer or service provider. The tax however is largely borne by the consumer. It is paid by a licensed manufacturer, licensed person making the supply or an importer of excisable goods. For manufacturers, the tax point is the time of removal of the goods from the factory whereas for excisable services, it is at the time of supply of the services.
Exercise return is filed on iTax on or before the 20th of the following month. There are different rates for every product e.g. Fruit juices- Shs. 11.04 per liter, Bottled water- Shs. 5.47 per liter, wines- Shs. 165.93 per liter, sugar confectionery- Shs. 21.03 per kg.
NB/ Application for excise is made on iTax together with the relevant application fee and documents. The law requires excisable goods to be affixed with excise stamps except for motor vehicles. Currently, this has been implemented on all alcoholic beverages and tobacco products.