EDITORIAL: Tread carefully on tax

The Treasury should make a careful consideration before deciding to reduce the excise duty remission on sorghum from the current 80 percent to 60 percent.

While the government has always justified that increasing sin tax on commodities such as alcohol and cigarettes helps discourage consumption, the move will upset the war on illicit brews.

Beer companies such as East African Breweries Limited #ticker:EABL are already reeling from the State order to close bars in order to contain spread of Covid-19 hence cutting the remission will suppress their margins further.

The price of bottom-end beer such as Senator Keg will rise, taking it out of reach of the targeted consumers and therefore encourage consumption of illicit brew.

This will not only put the lives of consumers at risk, but also cut the tax that government will get out of beer companies and also render thousands of sorghum farmers jobless.

Overall tax due to government such as excise duty, VAT and corporate tax is likely to drop due to reduced demand and increased consumption of illicit alcohol. This therefore beats the logic.

A similar scenario has already played out with cigarette makers.

The introduction of solatium compensation contribution levy for instance saw BAT Kenya #ticker:BAT post a drop in profits as government earnings also declined by 1.4 percent to Sh18 billion.