Kenya's formal economy is threatened by an increase in illicit trade and fake products, the Retail Trade Association of Kenya (Retrak) has said.
This, according to the lobby group is driven by the high cost of doing business among them numerous taxes and an unpredictable business environment.
Retrak CEO Wambui Mbarire said the cost of doing business in Kenya has increased tenfold with at least nine new taxes and levies introduced in the current financial year.
This adds to the recent excise inflation adjustment by Kenya Revenue Authority in November, based on the average inflation rate for the 2020/2021 financial year of 4.97 per cent.
Products such as fruit and vegetable juices now attract an excise duty of Sh12.17 per litre, up from Sh11.59.
Bottled or similarly packaged waters and other non-alcoholic beverages, not including fruit or vegetable juices, attract a duty of Sh6.03 per litre, up from Sh5.74.
Beer, cider, perry, mead, opaque beer, and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of an alcoholic strength not exceeding six per cent, attract excise of Sh121.85 per litre, up from Sh116.08.
The same has been passed to consumers, which has seen some opt for cheaper products, hence the rising demand for illicit goods which are eating into formal traders' marketshare.
“Repeated tax increases on alcohol, for example, have created a situation whereby nearly half, about 44 per cent of the alcohol consumed in Kenya is illicit,” Mbarire said.
This, she says, is costing taxpayers and the government an estimated Sh78 billion in lost revenue.
A further Sh4 billion in annual excise revenue is estimated to be lost through the illicit cigarette trade.
Border towns are notorious for trading in illicit and contrabands, where rogue players import cheaper goods from neighbouring countries through porous borders, evading taxes.
For instance, the cost of basic goods such as milk, flour, rice, and bread are on average between Sh20 and Sh50 cheaper in Uganda compared to Kenya.
Beer and cigarette prices are twice expensive in Kenya.
“This presents an obvious incentive for smugglers to exploit our porous borders and sell goods bought more cheaply in Uganda to customers in Kenya.
While the government has put in place measures to curb illicit trade and tax evasion, the impact on the ground is “very minimal”, Mbarire notes.
“Our lawmakers must be forced to acknowledge that their actions have had inadvertent consequences –fuelling this criminality, through the current unpredictable fiscal policy that is driving increasing numbers of consumers to the shadow economy,” Mbarire said.
The association has since called on the government to create a conducive business environment to support the growth of genuine businesses while protecting them from rogue players.
Making investing in Kenya expensive will push away investors from the country, Retrak warns.
According to Kenya’s Anti-Counterfeit Agency (ACA) illicit trade denies the taxman up to Sh153.1 billion annually.
The country is also losing between Sh85 billion and Sh100 billion annually to counterfeiting activities alone.
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