What the rollout of excise stamps on cosmetic and beauty products means for SMEs in Kenya

What are excise stamps?

Excise stamps are physical and/or digital marks that are applied to products as an indicator that not only have taxes, duties and regulatory fees been paid, but also requisite quality tests and inspections have been passed. It is part and parcel of the Excisable Goods Management System (EGMS (Amendment) Regulations, 2023).
You have probably spotted these Kenya Revenue Authority (KRA) markings on alcoholic beverages, cigarettes and more recently, bottled drinking water. The Kenyan government introduced excise stamps to monitor and control movement of products within the supply chain to ensure manufacturers and importers are paying their tax obligations and adhering to set quality and safety standards.
The Kenyan excise stamp program is a collaborative effort of the Kenya Revenue Authority (KRA), Kenya Bureau of Standards (KEBS), the Ministry of Health (MOH) and the Ministry of Industrialization, Trade and Enterprise Development to promote consumer safety and combat the counterfeit market.

According to the updated regulations, cosmetics and beauty products will attract a fee of 2.5 Kenya Shillings per stamp. This category of products did not attract Excise Duty previously.

5 Effects of the Program on SMEs in the Sector

Reduce proliferation of counterfeit beauty products in the market

Crackdowns on beauty products with hazardous ingredients including but not limited to heavy metals such as lead, mercury and arsenic are not uncommon in Kenya. The health ramifications of the continued use of these contaminated products lead to skin conditions and in more serious cases neurotoxic diseases.

When a sector is highly regulated, product circulation is subjected to more scrutiny from both regulatory authorities and consumers alike, making it difficult for substandard/ fake products to infiltrate the market. The introduction of excise stamps will make it easier for beauty and cosmetic consumers to authenticate products, holding vendors/traders accountable for products they stock and sell.

Barrier to entry and continuity for small beauty businesses

While traditional channels, namely mega retail stores, pharmacies, chain beauty shops etc. dominate the cosmetic and beauty industry in Kenya, the low capital investment requirement coupled by a growing young adult consumer demographic has opened the space a multitude of online shops on various e-commerce platforms.

The updated regulations and costs associated with the excise stamp compliance requirements increase barriers and will see many such small-scale importers/vendors/ traders out of business, while making it impossible for new entrants to venture into the sector. The Kenya Association of Manufacturers (KAM) have termed the new regulations as “counterproductive”, with the potential to have a detrimental effect on consumers and manufacturers amid the rising cost of living.

Limited product availability and selection

Excise stamp compliance will see to it that only beauty and cosmetic products that have been tested in an ISO 17025 laboratory and meet the Kenya Bureau of Standards (KEBS) test parameters are traded in the Kenyan market. While this is a positive development for the sector, this will also have a direct effect on product availability and selection in the market, as beauty and cosmetic products that do not meet this criteria will be impossible to import and/or trade.

Fair Competition

Most of the beauty and cosmetic products purchased in the country are imported. Some unscrupulous traders take advantage of cracks in the system to import and trade cosmetic and beauty products without undergoing the necessary . This has inevitably led to unfair competition in the market for importers and manufacturers of genuine products that have adhered to all set regulations. The introduction of excise stamps on cosmetic and beauty products will even the playing ground and protect genuine small and medium traders in this regard.

Greater tax compliance

This program by the Kenya Revenue Authority (KRA) is a master stroke in ensuring tax compliance by all players in the cosmetic and beauty industry. Importers, both big and small, will have to declare the value of their consignment, before having their goods cleared at the port of entry. The knock-on effect is the transfer of tax liability along the supply chain, enhancing the government’s revenue collection in the sector.

The excise stamps program for cosmetic and beauty products is scheduled to begin on July 1, 2023. Stakeholder engagements by the Kenya Revenue Authority (KRA) has identified the main challenge to implementation of the planned excise stamp roll out as the issue of stamp size vis a vis product package. To which a two-phase approach has been proposed where all cosmetic and beauty products other than lip and eye makeup will be covered in phase one. The remaining two items will be rolled out once development of a solution is finalized. Wondering how best to hedge your beauty SME from the resulting operational risks of the planned excise stamp rollout by the KRA? Reach out to The Skincademy for a consultation at info@skincademy.co.ke today.