The Treasury’s proposal to increase tax on beer made from sorghum, cassava or millet will result in the loss of up to 330,000 jobs as demand drops due to a price hike of the affordable beer, distributors of Senator Keg have said.
The distributors, and the Pubs and Restaurants Association of Kenya (PERAK) said the proposal by the Treasury would deal a damaging blow to efforts to reduce the number of drinkers taking illicit alcohol.
Speaking at a press conference in Nairobi, they said the proposal made public last week was also ill-timed, as the industry is already reeling from the effects of the economic slowdown caused by the COVID-19 pandemic.
“The proposal by your office will lead to an increase in the retail price of Keg beer at a time when we have observed massive increase in illicit brew consumption due to closure of bars and a severely depressed economy affecting the daily wage economy,” they said in their submission to the Cabinet Secretary for the National Treasury, Ukur Yatani.
Thuku Kariuki, the spokesman for the Keg distributors, said the ripple effect of the tax would be devastating to their trade, and would result in increased unemployment, illicit brew consumption, and loss of revenue for distributors and retailers, who employ approximately 130,000 people directly and 200,000 people indirectly.
The alcohol beverage industry has been among the hardest hit by the COVID-19 pandemic and with bars ordered closed there have been no sales of Senator Keg, which does not have a takeaway or delivery option.
“We are currently losing close to KSh100 million daily in sales revenue and we are struggling to meet our fixed costs, including the payment of workers. Our customers across Kenya have already asked for assistance and trade financing once bars reopen. However, most of them are not sure if they will ever come back to business,” said Mr Kariuki.
Patrick Muya, the patron of the Pubs, Entertainment and Restaurants Association of Kenya, said the move would amount to double jeopardy for a sector already in dire straits.
“While we support the Government’s measures during these unprecedented times, we submit that the industry needs all the support it can get, and not proposals that are likely to cause more pain and suffering than good,” said Mr Muya.
With access to legal alcohol reduced and incomes affected, said Mr Kariuki, there are concerns that drinkers have turned to illicit alcohol or low-value spirits, with some reported cases of desperate consumers taking hand sanitiser, which is risky.
The distributors also asked the Government to learn from recent experience, specifically the decision in 2013 to have manufacturers pay Excise Duty at 50% where they previously enjoyed 100% remission.
The price shot up from Ksh20 to Ksh30 per 300ml serve and the industry lost customers to illicit brew as the volume of sales dropped from an average 15 million litres to 2 million litres per month.
About 4,800 of a total 13,000 Senator Keg outlets shut down within three months of the tax and by the time the remission was reinstated in 2015, 10 distributors were shut, 10,300 outlets closed, KSh11 billion in trade and more than KSh1 billion in employment income lost.
“In total, an estimated 100,000 people who were previously earning an income from Senator Keg beer were unemployed,” said Mr Kariuki as he asked the Government not to repeat the mistake.
The distributors said the increase in tax would reverse the gains made in fighting the consumption of illicit alcohol, which was the intention when the Government agreed to introduce the remission for beer made from indigenous ingredients.