The report dated March, 23, 2016 indicates that the government lost Sh43.7 billion in taxes in the 2013-2014 financial year to illicit brews.
Legitimate dealers paid taxes worth Sh102 billion in 2014 and Sh122 billion in 2014-2015 financial year.
“The government should have collected Sh145 billion in taxes from the industry in that period. You will note that tax collection deficit in this regard is significant,” the report states.
Illicit brews account for 30 percent of the alcohol market with the legitimate companies sharing 70 percent.
According to the report, taxes account for 50 percent of the cost of production for alcohol manufactures as illicit brewers are able to save 50 percent of their cost of production making their alcohol cheaper thus attractive to Kenyans.
“By way of illustration, based on industry data, standard costs of producing 250 ml of brandy are approximately Sh93.34, VAT inclusive. Excise duty is 43.75 percent of this cost. The indicative market price is Sh120 when other costs such as labour advertising and profit margins are included,” the report says.
The report notes that taxes continue to remain high which contributes to illicit brewing in the country.
Excise tax for beer is valued at Sh100 per litre while tax for spirits is valued at Sh175 per litre; wine excise taxes are Sh150.
In addition, locally produced and imported alcoholic drinks are subject to VAT as they are taxable supplies.
The market is also facing importation of alcohol beverages through the porous borders leading to entry of imported materials with no duties levied.
The report urges the government to lower the excise duty in a bid to widen the tax net.
According to the report, gin is the fastest growing product among spirits growing by 34 percent in 2014; however Vodka still dominates the Kenyan market.
East Africa Breweries Limited (EABL) continues to lead spirits production in Kenya, followed by UDV Kenya.
Other major players include London distillers limited, Keroche Breweries, Africa Spirits Limited and Kenya Wine Agencies among others.
In June 2015, the government launched a crackdown on the production and distribution of illicit brew which is still ongoing.