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Kenya’s alcohol manufacturers and distributors are pushing for a further reduction in excise tax on a key ingredient used in spirit production, warning that the current rate remains too high compared to neighboring countries, encouraging illicit trade and smuggling.
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This follows the National Treasury’s proposal in the Finance Bill 2025 to lower the excise duty on undenatured Extra Neutral Alcohol (ENA) with over 90% purity—used to make spirits like vodka and gin—from KSh964 to KSh500 per litre.
Treasury CS John Mbadi noted in his budget speech that the previous excise regime, which taxed pure alcohol based on alcohol content (ABV), had raised production costs sharply, prompting the shift to a volume-based system and the proposed rate reduction.
However, industry players argue the KSh500 rate is still uncompetitive, especially when compared to Uganda’s rate of KSh90 per litre and Tanzania’s KSh250. They warn this price gap continues to encourage smuggling of cheap ethanol, fueling the production and sale of illicit alcohol.
Eric Githua, chair of the Alcoholic Beverages Association of Kenya (ABAK), said that while the proposed cut is welcome, the high tax still makes Kenya vulnerable to cross-border smuggling and unfair competition.
ABAK, which includes major players like EABL and Kenya Wine Agencies Ltd, said that the proposed rate is 5.6 times higher than Uganda’s, reducing profitability and hindering local production.
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The Kenya Association of Manufacturers (KAM) echoed the call for a reduction to KSh250 per litre, saying it would narrow the gap with neighboring countries, boost competitiveness, support related sectors like sugar, and improve tax revenue.
A recent study by Euromonitor, commissioned by ABAK and backed by various government agencies, revealed that 60% of alcohol consumed in Kenya is illicit. Ethanol smuggling from Uganda has surged, costing the government an estimated KSh9 billion annually in lost taxes and contributing to a total estimated annual revenue loss of KSh120 billion due to illegal alcohol.
The study found that smuggling-related losses have jumped 144% since 2022, driven by rising taxes that have made legal products less affordable. Consumers are increasingly turning to cheaper illegal alcohol, often sold through informal channels, due to cost and easy access.
Industry PS Juma Mukhwana, who attended the study’s launch, said the findings will help inform policy changes aimed at tackling the illicit alcohol problem while supporting legitimate manufacturers.
