The government gave up an additional Sh4.6 billion in excise duty in 2024 compared to 2023, following a surge in the supply of alcohol to military canteens and increased local assembly of vehicles.
State tax expenditure is the value of taxes forgone due to waivers, exemptions, or breaks on certain commodities or entities to support certain groups, industries, or individuals.
The spending on excise duty rose 37 percent to Sh16.9 billion in the year to December 2024 from Sh12.3 billion a year earlier, according to the latest Tax Expenditure Report published by the National Treasury.
This came amid an overall drop in the government’s tax expenditure over the same period, which decreased by 22.2 percent to Sh286.5 billion from Sh368.4 billion, driven by the latest reforms to boost tax efficiency, according to the Treasury.
The largest increment on excise tax spending was on import excise duty, which nearly tripled to Sh6.2 billion from Sh2.1 billion in 2023, largely driven by the growing local assembly of motor vehicles.
“This underscores a deliberate policy decision by the government to support and promote local manufacturing,” said the Treasury in the report.
Imported cars are charged an excise duty of between 10 percent and 35 percent, depending on engine type and size, while locally assembled ones are fully exempt to support the domestic manufacturing industry.
The rise in domestic excise duty expenditure by the government was, on the other hand, driven by increased purchases of alcoholic beverages by the Defence Forces Canteen Organisation, which sells duty-free products to military officers.
Excise duty forgone on alcohol sold to the soldiers rose from Sh680.9 million in 2023 to Sh711.8 million last year, while those foregone on non-alcoholic drinks rose by Sh2.4 million from Sh14.7 million to Sh17.1 million.
Increased consumption of keg beer also raised the government’s spending on excise taxes, with the ongoing duty remission on the beer made from locally sourced crops costing the state Sh9.97 billion in 2024, up from Sh9.48 billion in 2023.
Keg beer enjoys excise duty remission of up to 80 percent.
“This shift suggests a reorientation of consumption from conventional alcoholic beverages to keg beer, driven by affordability, availability, and strong consumer demand,” said the Treasury.
“The incentive not only promotes local agricultural value chains and supports smallholder farmers but also sustains keg beer as a more accessible option for low-income groups.”
Other than excise duty, spending on all other tax heads by the State saw a marked drop following the reforms introduced over the last two years, including the removal of zero-rating and value-added tax (VAT) exemption status for several products, including petroleum fuels.
At Sh204.5 billion, VAT alone accounts for 71 percent of the government’s total spending on tax exemptions and waivers, highlighting the high cost of zero-rating and exempting products to the State.
Spending on import duty, including the Import Declaration Fee and the Railway Development Levy, almost halved from Sh70.2 billion in 2023 to Sh36.1 billion last year, largely due to a drop in the importation of duty-free sugar, milled rice, and raw materials used for the manufacture of animal feeds.
