Alcohol, betting to cost more as rate cap remains

Consumers will pay more for alcohol, cigarettes and betting after Parliament Wednesday reviewed upward taxes proposed by the Treasury in changes that saw the lawmakers block the move to scrap a cap on commercial lending rates imposed in 2016.

Parliament’s Finance committee in its review of taxes for the year starting July maintained the rate cap but sought to change its language to plug gaps highlighted by Judges who earlier termed control of loan costs illegal.

In its budget proposals to Parliament in June, the Treasury sought to repeal the rate cap, arguing that it has squeezed private sector credit growth as banks shunned lending to customers deemed risky such as small and medium-sized businesses.

In a raft of new tax measures intended to finance Kenya Sh3.1 trillion Budget, MPs increased excise duty charged on cigarettes by 26.4 percent, wines (26 percent) and spirits (26.5 percent).

The Treasury had in June proposed an average rise of 21 percent increase on the three items.

Beer, wines and spirits prices had increased by 5.17 percent in July after the annual automatic adjustment to factor inflation was effected.

The committee also hit gamblers with a 20 percent excise tax on the amount they bet, up from Treasury’s proposal of 10 percent in a move that will automatically give the government a sizeable share of the billions of shillings that Kenyans have been using in sports betting.

The government previously targeted winnings when taxing betting firms in changes that drew opposition from betting firms, a majority of whom are out of business after the State failed to renew their operations permits from July on unpaid taxes.

Lawmakers were in agreement with the Treasury on the need for punitive betting taxes in response to the negative social effects of gambling on young and vulnerable members of society.

“The committee observed that betting tax and excise duty tax were meant to address different issues hence it was impossible to treat these two taxes as the same. In order to deal with negative externalities related to betting, the tax chargeable is excise duty,” the committee said.

On interest rate caps, the committee said it will support the ongoing review of the law that seeks to entrench interest rate controls.

Parliament is currently debating a new bill capping commercial bank interest rates that seals loopholes that led the High Court in March to declare legal limits on lending charges unconstitutional.

Judges had given Parliament till March next year to re-examine the law, which the Treasury was seeking to repeal through the Finance Bill.

Jude Njomo, the Jubilee lawmaker who sponsored the caps law in 2016, has introduced a fresh bill that seeks to entrench the limits on interest rates.

Commercial interest rates were capped in 2016 at four percentage points above the benchmark central bank rate — currently 9 percent — by lawmakers who said they were concerned about high loan costs.

High Court termed the rate cap law illegal because it failed to define key technical words, making the legislation ambiguous.

The judges took issue with Parliament’s failure to define the terms ‘credit facility’ and the ‘Central Bank Rate’ (CBR), leaving them open to misinterpretations.

They also observed that Section 33B (3) only prescribes punishment for banks and their CEOs and not customers and other persons who contravene the provision.

The new bill provides for fines and jail terms for borrowers who ignore interest rate caps.

The bill has fixed the wording in line with the High Court’s ruling with ‘credit facility’ now reading ‘loan’ and defining the ‘rate’ as the one captured under section 64 of the Central Bank Act. Loan is also defined as any advance, credit facility, or financial guarantee.

Banks had petitioned lawmakers to scrap the rate cap with a rider that the uncontrolled loan cost will apply to new credit.

The committee wants duty on wines, including other alcoholic drinks obtained from fermentation of fruits, raised to Sh189 per litre from Sh181 proposed by the Treasury.

Duty on spirits with alcoholic strength of more than 10 percent will increase to Sh253 from Sh242 per litre in the bill fronted by the Treasury.

Smokers of filtered cigarettes, on the other hand are staring at an increase in duty by nearly Sh3.20 per stick, up from the Sh3.03 in the Finance Bill.

Those using cigarettes without filters face Sh2.27 duty per stick, up from Sh2.18 proposed by the state.

Alcohol and cigarettes, the main sources of ‘sin’ taxes, account for the lion’s share of the excise tax revenue, which stood at Sh195.73 billion in the fiscal year ended June 2019.

Parliament will vote on committee’s recommendations on a date to be determined. The measure will then be forwarded to the President for assent.