Financial experts warn MPs against passing Finance Bill as proposed
Treasury Cabinet Secretary Prof Njuguna Ndung'u displays the Budget briefcase ahead of his speech in parliament in Nairobi, Kenya.
What you need to know:
- The proposed tax measures will also hit the food industry hard.
- Government data shows that at least 13 million Kenyans do not get food every day.
Experts in the financial sector want MPs to throw away the punitive taxation measures as proposed in the Finance Bill 2024 warning that they will hit the poor hard and potentially slide the country into even more difficult economic times if enacted in its current form.
The Bill seeks to raise at least Sh302 billion to finance the proposed ambitious Sh3.9 trillion budget for the 2024/25 financial year.
The experts among them the Institute of Public Accountants of Kenya (ICPAK), the Institute of Economic Affairs (IEA) and the Institute of Public Finance (IPF) made their point during a session with the Finance and National Planning Committee of the National Assembly that is undertaking public hearings on the Bill.
The experts were unanimous that the proposed new taxes and the plan to increase tax rates will potentially see the Kenya Revenue Authority (KRA) miss the projected revenue targets “in a bigger way than witnessed before.”
The proposed tax measures will also hit the food industry hard even as it emerged that 30 per cent of Kenyan children under the age of five suffer stunted growth due to poverty.
Government data also shows that at least 13 million Kenyans do not get food every day, meaning that the situation is bound to get worse if the Bill becomes law in its current form.
The contested taxes as proposed in the Finance Bill include the 25 per cent Excise Duty on refined and crude vegetable oils, the Motor Vehicle Circulation Tax at the rate of 2.5 per cent of the value of the car and the removal of bread from the list of zero-rated goods to the tax bracket.
The Bill also seeks to introduce an eco-tax at the rate of Sh150 for a kilogramme of plastics used for packaging and tax insurance services except for premiums among others.
ICPAK chairman CPA Philip Kakai in a presentation to the committee asked the MPs to pass a reasonable budget.
“Over-taxation does not lead to high revenue. It does not grow our economy. The more the tax you impose the less revenue you generate,” CPA Kakai told the Finance Committee chaired by Molo MP Kimani Kuria noting that corruption and cash flow leakages are major concerns.
Clause 35 (a) of the Finance Bill proposes the deletion of part 13A of the second schedule to the VAT Act which zero-rates the supply of ordinary bread to Kenyans.
However, ICPAK notes that the introduction of VAT on ordinary bread will have a ripple effect on the economy.
“First, the industry employs a substantial number of people through forward and backward linkages. Secondly, the raw materials are supplied by farmers who are largely the common mwananchi,” says CPA Kakai.
He also noted that the increase in the cost of bread will also have a bigger impact on the common mwananchi who generally spend a larger portion of the income on food.
Mr Kwame Owino of the Institute of Economic Affairs (IEA) cautioned the MPs against the proposed punitive taxation regime.
“Parliament should be cautious about taxing food, which currently many Kenyans have no access to. The legislators should not deny the people of Kenya an opportunity to live,” said Mr Owino as he questioned the logic of imposing an Excise tax on entertainment.
The articles of plastic proposed for taxation are key materials used in the packaging and storage of cooking oil, in what would further escalate the cost of the commodity.
If implemented as proposed, this excise duty will trigger an unprecedented surge in the price of cooking oil, a staple in Kenyan households.
Cooking oil is not an isolated product but a fundamental ingredient of food items consumed by all Kenyans.
The implication of the proposed excise duty adjustments on raw and refined vegetable oils will see the price of a 400-gram loaf of bread increase by Sh10 compared to the current Sh70.
The ripple effects extend beyond the kitchen, affecting other essential products derived from vegetable oils with the price of long bar soap likely to escalate from Sh200 to ShSh350 and 250 grams of margarine to hit Sh300 from Sh160.
Additional reporting by Daniel Ogetta
