Excise Duty Act, 2015 Presentation by: Caleb Mokaya CPA Thursday, 10 th May 2018 Uphold public interest 1
Policy considerations Excise Duty is a tax on tax on the importation or local manufacture of certain products and supply of excisable services often referred to as a luxury tax, a sin tax Policy considerations which Government examine when looking at excise taxation include: Revenue sources; Health; Environment; Fiscal. Political Earmarking - Many Governments use excise taxation to influence the consumption of certain goods ultimately to achieve desired Government policy outcomes. Externalizing costs - These costs relate to those resources required by a Government to treat the harm created by the consumption of certain products e.g. alcohol and cigarettes. 2
Types of Rates Specific - a specified amount of tax is charged per unit of measure of the excisable product. E.g. Kshs. 100 per litre for beer. Ad valorem - refers to a percentage rate of duty charged on the value of an excisable product. e.g. 10% for food supplements. Hybrid of specific or ad valorem whichever is higher. The new excise duty Act has moved away from use of hybrid and ad valorem to use specific rate. 3
Imposition of excise duty Excise duty shall be charged on Excisable goods manufactured in Kenya by a licensed manufacturer; Excisable services supplied in Kenya by a licensed person; Imported excisable goods into Kenya. Excise duty is payable by The licensed manufacturer; Licensed person making the supply; or The importer of excisable goods. *The manufacturer/ supplier of excisable supplies usually shift the tax by raising the price paid by the buyer 4
Goods not subject to excise duty Goods which meet the conditions set out in the Second Schedule (exemption schedule); Goods exported under customs control, including ship stores; Exported services; Goods destroyed with the prior written permission of the Commissioner, under the supervision of an authorized officer before their removal from the factory; Denatured spirits for use in the manufacture of gasohol or as a heating fuel; Goods lost or destroyed by accident or other unavoidable cause: in the course of their removal from the factory; before removal from the factory; or on board an aircraft or vessel prior to importation into Kenya. 5
Time and place of supply Time of supply of excisable services shall be the earlier of: Date on which services are performed, or Date on which the invoice is issued, or Date on which payment is received. For imported goods, the time of importation will continue to be when the goods are: cleared for home use at the port or from a warehouse, removed from an export processing zone, or in any other case at the time the goods are brought into Kenya. Supply of excisable services will be deemed to have been made in Kenya when the services have been supplied from a place of business of the 6 supplier in Kenya.
Timing of liability Liability for excise duty on goods arises at the time of importation or removal of excisable goods from a licensed manufacturer s factory; Section 2 defines factory as any premises at which a licensed manufacturer is licensed to manufacture and store excisable goods, but does not include any part of the premises through which excisable goods are sold to the public; Liability for excisable services shall arise at the time of supply of the service. 7
Excise Valuation - goods Imported goods Section 9(2) provides that the value of imported goods for purposes of levying excise duty shall be the sum of: the customs value as determined under the EAC CMA; and the amount of import duty, suspended duty and dumping duty. Locally manufactured goods Section 9(3) provides that the value of locally manufactured goods for purposes of levying ad valorem excise duty shall be the ex-factory selling price excluding: value added tax; cost of excise stamps; and the cost of any returnable package, box, bottle or container. 8
Excise Valuation - services The excisable value of excisable services shall be: If the excisable services are supplied by a registered person in an arm s length transaction the fee, commission or charge payable for the service; or In any other case, the open market value of the services; The excisable value for excisable services shall not include VAT; The excisable value for fees charged by financial institutions shall not include interest or an insurance premium; The new Act defines other fees to include any fees, charges or commissions charged by licensed financial institutions,excluding interest on loan or return on loan or an insurance premium or premium based or related commissions. 9
Excise returns Licensed manufacturers or licensed suppliers of services should submit monthly excise duty returns not later than the 20 th day of the succeeding month whether excise duty is payable or not; The TPA provides for application of extension of time required to submit the excise return; Application should be done before the due date. 10
Relief for raw materials Where excise duty has been paid on imported or manufactured goods which are subsequently used to manufacture other excisable goods, the excise duty is offset against the excise duty payable on the finished goods. 11
Obligations of a licensed manufacturer Keep and maintain metering and measuring devices; Store excisable goods in the factory in a manner to facilitate the taking of a full account of the goods; Keep a materials account of raw materials and intermediate goods in the approved form (Form E6); Keep a finished goods account in the approved form (Form E6); Ensure that excise duty is paid on any excisable goods consumed at the factory; Comply with such other requirements as may be specified in the Regulations; Notify commissioner of any discrepancies between the actual and recorded inventory; Any goods which cannot be accounted to the satisfaction of the commissioner are deemed to have been removed from excise control in the month when the 12 discrepancy [To edit, click View > Slide occurs. Master > Slide Master]
Record keeping Persons liable to pay excise duty are required to maintain the following documents for a period of 5 years from the end of the relevant reporting period: An inventory of raw materials and intermediate goods for use in manufacture of excisable goods; An inventory of finished goods; Any other documents to facilitate computation of the person`s excise duty liability such as: Excise returns; Production schedules; Proof of duty payment; Import and export entries where applicable; Income schedules incase of services. 13
Licensing The Act provides that persons carrying out the following activities should be licensed or registered by the Commissioner: The manufacture of excisable goods in Kenya; The importation into Kenya of excisable goods requiring an excise stamp; The supply of excisable services; The use of spirit to manufacture goods in Kenya that are not excisable goods; or The carrying out of any other activity in Kenya for which the Commissioner, by notice in the Gazette, may impose a requirement for a licence. 14
Refunds Excise duty refunds may arise where: Goods are damaged or stolen during transportation to Kenya; Goods are damaged or destroyed while subject to excise control; Goods are returned to the seller as per the sales agreement; Excise duty has been paid on spirits that have subsequently been used to manufacture unexcisable goods; The licensed person has accounted for excise duty but has not been paid for the supplied goods or services; Where excise duty has been paid on importation of excisable goods which have subsequently been exported, Section 138 of the EAC CMA on duty drawback is applicable in this case. 15
Refunds Requirements Applications should be done in the prescribed form within 12 months from the date of payment of the duty; Incase of refunds arising from bad debts applications should be made on the earlier of: 3 years from the date of the sale of the goods or services; or the purchaser becoming legally insolvent. 16
Excise duty exemptions-goods Bona fide ship stores; Goods imported or purchased by a diplomatic or consular mission; Goods imported or purchased by foreign government, international organisation or aid agency; Motor vehicles for use by persons with disability; Excisable goods including a motor vehicles imported by a returning resident or a person changing residence subject to certain conditions; Goods imported or purchased for official use by the Kenya Red Cross; Motor vehicle previously owned and used by a deceased person outside Kenya; Excisable goods imported by and in possession of a passenger subject to limitations under the fifth schedule (Part B Item 5) of the EAC CMA. 17
Excise duty exemptions-services Services supplied in Kenya to a diplomatic or consular mission; Services supplied in Kenya to a foreign government, international organization or aid agency. 18
Excise Duty Regulations 2017 Value Added Tax Regulations, 2017 19
Excise Duty (Remission of Excise Duty) Regulations 2017 Repeal the 2013 regulations Remission of excise duty at 80% with respect to beer made from agricultural produce grown in Kenya except barley. Monthly return filing obligation indicating quantity and type of raw material used, beer manufactured and sold. Conditions Necessary for Remission of Excise Duty: i. tax compliance; ii. valid excise license; iii. fully installed EGMS; iv. pressurized container packing; v. selling price under Shs. 100 per litre; vi. regulatory compliance; and vii. At least 75% local produce apart from barely and sugar. Non compliance may result to refunding the excise duty remitted in addition to any other fine 20
Excise Duty (Excisable Goods Management System) Regulations, 2017 Repeal the Excisable Goods Management System Regulations, 2013. Excise stamp defined to mean a paper stamp, digital stamp or any mark that the Commissioner may approve for affixation or printing on excisable goods Application 60 days before manufacture or importation CG may require 6 month forecast 60 days before the month in which the stamps are required Place of Affixation locally manufactured goods - at the production facility immediately after packaging imported goods- at a place approved by the Commissioner within five (5) days of the clearance of the goods for home use: 21
Excise Duty (Excisable Goods Management System) Regulations, 2017 Excise stamps on imported goods can be affixed at the production facility in the exporting country Commissioner can upon application by a manufacturer or importer, permit digital stamps to be printed by the System on each package and in a visible place with indelible security ink Objectives of Excise Stamps: to deter counterfeiting; to facilitate tracking of the stamps and excisable goods along the supply chain; to enable accounting for the production of excisable goods manufactured or imported; and To facilitate any persons in the supply chain to authenticate the stamps and excisable goods. 22
Excise Duty (Excisable Goods Management System) Regulations, 2017 Return for Unused Excise stamps Allowance for damaged stamps Transfer of Excise stamps duty free and export excisable goods to be marked appropriately Verification of stamps Refusal to issue Stamps Manufacturers or importers of excisable goods shall be responsible for the cost of; excise stamps excise stamps applicators adjustments or adaptations of their equipment and premises necessary to install and integrate the new or modified System on each production line 23
Excise Duty (Excisable Goods Management System) Regulations, 2017 Excisable goods exempt from Excise Stamps include: Goods manufactured for export good for the Kenya Defence Forces goods for the National Police Service Goods delivered to a duty free shop goods imported or purchased from a duty free shop by privileged persons or institutions listed in the Second Schedule goods imported into Kenya as samples which shall have been exempted from import duty under the Fifth Schedule to the East African Community Customs Management Act *Commissioner has power to seize excise stamps, equipment, vehicles or goods 24
Excise Duty (Excisable Goods Management System) Regulations, 2017 Category Cigars, cheroots, cigarillos, containing tobacco or tobacco substitutes Cigarettes containing tobacco or tobacco substitutes Fees (KES) 2.8 per stamp Other manufactured tobacco and manufactured tobacco substitutes; homogenous and reconstituted tobacco ; tobacco extracts and essences Wines including fortified wines, and other alcoholic beverages obtained by fermentation of fruits Mineral water and aerated water of tariff 2201.10.00 1.5 per stamp 25
Excise Duty (Excisable Goods Management System) Regulations, 2017 Category Spirituous beverages of alcoholic strength not exceeding 10% stamp Beer, cider, perry, mead, opaque beer and mixtures of fermented beverageswith non-alcoholic beverages Fruit juices (including grape must), and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweeting matter Sweetened or flavoured water and non-alcoholic beverages Cosmetics and beauty products of tariff heading 3303, 3304. 3305 and 330 Fees (KES) 1.5 per stamp 0.6 per stamp 26
Non compliance regime Value Added Tax Regulations, 2017 27
General offences and penalties Section Offence Penalty TPA sec Late filing of excise returns 5% of payable excise 83 duty or KShs 20,000 TPA Sec 83 TPA Sec 38 EDA Sec 38(1) EDA Sec 38(2) EDA Sec 38(3) Late submission of documents required by law other than tax return Late payment of excise duty Manufacture of excisable goods or importation of excisable goods requiring stamps without a license Manufacture of excisable goods in unlicensed premises Manufacturer deemed to have removed excisable goods from excise control without accounting for excise whichever is higher. KShs 1,000 per day subject to a maximum of KShs. 50,000 1% simple interest of payable amount capped at principal amount. Double the payable excise duty 28
General offences and penalties Section Offence Penalty EDA Sec 25(1) EDA Sec 28(4) EDA Sec 19(1) EDA Sec 19(2) Contravention of obligations of licensed manufacturers in relation to excisable goods under customs control Removal excisable goods requiring stamps from the designated area Failure to display license Failure to notify the commissioner of changes in operations Fine not exceeding KShs 5 million or imprisonment for a term not exceeding 3 years on conviction. 29
Key Updates Value Added Tax Regulations, 2017 30
Key updates 12 March 2018 - Kenya s High Court nullified the Excise Duty (Excisable Goods Management System) Regulations, 2017 issued under Legal Notice No. 53 of 2017 (EGMS Regulation). The Court s order was issued on the basis that the regulations were enacted without: i. adequate public participation; ii. in an unconstitutional manner; and iii. against the provisions of the Statutory Instruments Act. Manufacturers and importers of bottled water, juices, soda, other non-alcoholic beverages and cosmetics are no longer required to affix excise stamps. KRA to appeal the High Court decision to the Court of Appeal 31
Key updates Important to note that the following requirements still apply to manufacturers and importers of the aforementioned goods: i. Filing of monthly excise duty returns in accordance with the law ii. Payment of excise duties and taxes at the current prevailing rates Based on the High Court s ruling, manufacturers and importers of the respective goods are not required to: i. Register under the EGMS system;or ii. Affix excise stamps to the goods or maintain a monthly excise stamp register 32
Emerging issues 33
Miscellaneous Fees and Levies Act, Value Added Tax Regulations, 2017 2016 34
Export Levy A levy imposed by a country to make exportation unfavorable and promote local consumption Export levy is subject to annual inflation adjustment Goods subject to export levy Hides and skins, furs, heads, tails and paws Rate - Higher of the ad valorem or the specific rate 80%, or $0.52 per kg Scrap metal 20% Export levy does not apply to goods exported to the East African Community Partner States. 35
Import Declaration Fee Applicable to all imported goods into the country for home use Levied at 2% of customs value of the goods goods imported under the East African Community Duty Remission Scheme to pay IDF of KES 10,000 Payable by the importer at the time of entering the goods for home use. 10% of the collections goes to the AU or any other international organisation to which Kenya has a financial obligation. Goods listed under part A of the second schedule exempt when imported before clearance 36
Railway Development Levy Railway Development Levy On all goods for home use imported into the country Levied at the rate of 1.5% of the customs value at the point of entry To fund the construction of SGR network and thus facilitate transportation of goods Shall be paid into the Railway Development Fund Goods listed under Part B of Second schedule exempt when imported before clearance 37
Application of EAC CMA EACCMA to be applied in: The determination of value of imported goods The collection and enforcement of the payment of import declaration fee, railway development levy and export levy The collection and enforcement of the payment of assessments 38
Q & A 39
Contact details Karaya Mokaya Taxation Services Deloitte & Touche P O Box 40092, Muthangari, Waiyaki Way, Nairobi, 00100, Kenya cmokaya@deloitte.co.ke www.deloitte.com Direct: +254 722 323926 40