When we think of Excise Duty, our minds often go to “sin taxes” on goods like cigarettes and alcohol, or luxury items. Manufacturers and importers typically pay the tax, with revenue stamps affixed to the products to prove compliance.
So, what does a street hawker have to do with this formal system? The answer is more significant than you might think.
This article unpacks the surprising link between street hawkers and Excise Duty. It shows how these informal vendors are a critical, but often overlooked, part of the tax collection chain. We will explore how their business activities help generate revenue.
In addition, we will demonstrate why their formalisation of their businesses is a key opportunity for the government.
The Indirect Chain of Excise Duty
The goods that street hawkers sell do not exist in a vacuum. A significant number of products found on the streets of Kenya, from bottled water and soft drinks to cosmetics, are subject to Excise Duty.
While the street hawker does not pay this tax directly to the tax commissioner at the Kenya Revenue Authority (KRA), they contribute to it through the supply chain. How does this happen?
a. The Manufacturer and Importer Pay
By law, Excise Duty is levied on specific goods manufactured in Kenya or imported into the country. The responsibility for paying this tax falls on the manufacturer or the importer. They must apply for an excise license.
Also, they must affix excise stamps to each item before it is released to the market. The cost of this tax, along with the price of the excise stamp, is factored into the wholesale price of the goods.
b. Hawkers Purchase and Contribute
When a street hawker buys a crate of bottled water from a distributor, or a batch of cosmetics from a wholesaler, they are paying a price that already includes the Excise Duty remitted by the manufacturer or importer. Therefore, a portion of the hawker’s capital is a direct contribution to this tax.
A good example is the trade in cosmetics. The manufacturer pays the Excise Duty and affixes a stamp, and this cost is passed down through the supply chain, with the final burden resting on the consumer.
By acting as the final point of sale for a vast number of excisable goods, street hawkers ensure these products reach a broader market. This ultimately increases the volume of excisable goods sold and, by extension, the total Excise Duty collected by the government.
A Path to a Stronger Economy
The informal nature of street hawking presents challenges for direct Excise Duty collection. It also presents a massive opportunity for the government. Ignoring or penalising this sector means the government is missing out on a chance to create a more efficient and equitable tax system.
a. Formalising the Revenue Stream
Bringing street hawkers into the formal tax system would allow the tax commissioner to collect Excise Duty on a larger portion of the final price of the goods. This would be more productive than relying on the initial manufacturer or importer.
A simplified tax scheme linked to a digital platform or an easy-to-manage license could make direct compliance feasible.
b. Fighting Illicit Trade
The KRA’s Excise Goods Management System (EGMS) and its excise stamps are crucial tools for fighting illicit trade. However, as long as a significant portion of the market operates informally, there is a risk of goods with fake stamps or no stamps entering the market.
By formalising street hawkers’ businesses and educating them on stamp validation, the government can turn them into frontline partners in the fight against tax evasion. KRA’s mobile app for verifying stamps is a step in this direction, and widespread adoption by hawkers could be a game-changer.
c. Better Data for Policymaking
A formal, compliant sector provides the government with crucial data on consumption trends. This information is invaluable for economic planning, public health initiatives, and for setting future tax policies.
Final Thoughts
Instead of a game of cat and mouse, a collaborative approach that provides benefits and support in exchange for formalisation will create a win-win scenario. This will boost both government revenue and the livelihoods of millions of Kenyans.
