LSK loses bid to block higher excise stamp fees over Sh4.5bn KRA debt

By  Joseph Wangui

Correspondent

Nation Media Group

The High Court has struck out a Law Society of Kenya (LSK) petition challenging higher excise stamp fees that the taxman said were needed partly to cover a Sh4.5 billion debt owed to its stamp system contractor.

Justice Roselyn Aburili ruled that LSK filed its case before Parliament completed its scrutiny of the 2023 regulations, meaning the court could not determine whether the taxman’s decision complied with constitutional requirements for public participation, regulatory impact assessment and parliamentary scrutiny.

The dispute concerned stamps on beer, spirits, cigarettes, bottled water, soft drinks, juices and cosmetics. The stamps help identify genuine goods, track products and support excise duty enforcement. Manufacturers and importers pay according to the number of stamps issued.

The Kenya Revenue Authority (KRA) said fees had not changed since 2017, while inflation, a weaker shilling against the euro and a shift towards cheaper products had affected the system’s finances.

It said the revised charges would cover the cost of stamps and help clear the Sh4.5 billion owed to its contractor, Swiss firm SICPA, which supplied the stamps under a system contract signed in 2015.

The proposed fee on beer bottles doubled from Sh1.50 to Sh3, while that on cosmetics stamps rose more than threefold to Sh2.50 each.

LSK sued, arguing that the changes were introduced unlawfully and would increase costs for manufacturers and consumers. It said public participation was inadequate and that the regulations were published and enforced before the required process was complete.

It said the rules were identical to the draft, no regulatory impact statement had been prepared, and the instrument was not submitted to Parliament within seven sitting days.

The society said the increase unfairly burdened businesses and consumers. It argued that stamp charges were intended to administer tax compliance, not raise revenue. It asked the court to invalidate Legal Notice No. 30 of 2023 and stop KRA from enforcing it.

However, KRA defended the changes, saying stamp fees had remained unchanged since 2017, while inflation, currency depreciation and shifts towards cheaper products had undermined the system’s finances, hence the need to increase the charges.

KRA said this was caused by a shift in the product-volume mix in favour of low-priced products, whose sales eventually exceeded those of high-priced products.

It also said the containment measures introduced in 2020 due to the Covid-19 pandemic disproportionately affected sales of high-priced excisable products because of the closure of bars and restaurants, while sales of low-priced products were largely unaffected.

Depreciation of the shilling against the euro also added to the challenges. In view of these factors, KRA said the revised fees were expected to generate sufficient revenue to meet the cost of excise stamps and offset the outstanding Sh4.5 billion debt to its contractor.

KRA said it published a public notice on January 17, 2023, invited comments and held a stakeholder meeting on February 1.

It received submissions from companies and organisations, including the Kenya Association of Manufacturers, ICPAK, BAT Kenya, Kenya Breweries, Coca-Cola and the Alcoholic Beverages Association of Kenya.

KRA said the consultations informed the final rules and that an impact assessment was unnecessary because the changes involved amendments to fees.

The National Assembly said its Committee on Delegated Legislation had not completed its review when LSK filed the case. The Treasury Cabinet Secretary and the Attorney-General filed no responses.

In its judgment, the court said the committee had to assess constitutional compliance, rights and public participation.

“The Committee (the National Assembly) is the first port of call in determining whether the regulatory making authority complied with the Constitution and the law,” said the judge.

The court held that LSK “jumped the gun” by seeking a court decision before Parliament completed its work. It said there was no evidence before the court that a committee report recommending annulment had been tabled and adopted by the House.

“It would be remiss of this Court therefore, to determine the issues raise in the petition before the National Assembly concluded the legislative process with regard to the regulations,” said the court.

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