The National Treasury building in Nairobi.
The Treasury is bringing back some tax measures that it scrapped after deadly protests in June following tough conditions set by the International Monetary Fund (IMF), raising the risk of fresh round unrest.
The Treasury has given highlights of the yet to be published Tax Laws Amendments Bill, which will see a slew of high taxes on betting, phone calls and data before the close of the financial year in June.
The new taxes including some targeted multinational, taxi hailing firms like Uber comes after a series of meetings between top Treasury officials and the IMF in Washington last week.
IMF wants Kenya to increase tax collections in effort to reduce borrowing, arguing that the country under-performed on revenues and breached conditions of its multi-billion shilling loans, including the tranche of Sh78.3 billion ($606.1 million) approved Thursday.
This has prompted Kenya to revive the taxes that were withdrawn in the finance bill, with the depth of the new lies becoming clear once the Tax Laws Amendments Bill is tabled in Parliament.
Treasury Cabinet Secretary John Mbadi said in the highlight that the new taxes are the product of the need to cut back on borrowing and fund the cash trapped county governments, who have received a small portion of their budget cash.
It remains to be seen how people who were involved in the youth-led protest movement that rocked Kenya in June will react to the revived taxes amid fears they could go back onto the streets.
Some of the proposed taxes in the withdrawn finance bill included raising levies on essentials such as bread and diapers.
Mr Mbadi, a former vocal critic of the finance bill 2024 who was brought into the cabinet from the opposition benches as President Ruto tried to prop up his government, says the fresh tax proposals are a result of public views which the Treasury invited on September 17.
The Treasury says it received 35 submissions from the general public, civil society groups, professional bodies, private sector, religious groups and other stakeholders.
The cost of internet, calls and gambling is set to rise as the National Treasury proposed amendments to excise tax laws in an effort to raise additional revenues.
The Treasury has proposed to raise excise duty on internet and telephone calls to 20 percent from the current 15 percent, setting the stage for an upward revision of the prices telcos charge for these services.
Mr Mbadi is seeking to raise railway development levy to 2.5 percent from current 1.5 percent of import value and introduce minimum top-up tax which will see multinationals pay a minimum corporate tax at the rate of 15 percent.
Digital marketplaces
The proposal in the Finance Bill which sought to have operators of digital marketplaces such as food delivery and ride-hailing services pay a withholding tax at the rate of five percent for resident payments and 20 percent for non-resident payments is also back.
Ride-hailing services, online freelance jobs, and food delivery firms face a steeper six percent tax as the Treasury revived a proposal to raise revenue through the sources.
In its new proposals, the Treasury has proposed to introduce a new Significant Economic Presence Tax but a higher 6 percent rate, compared to the 1.5 percent that it had initially proposed under the Digital Service Tax. It joined countries such as Nigeria and India.
Wine prices are expected to rise while that of beer would drop in fresh proposals to set excise duty on beverages based on their respective alcohol contents by volume.
A one-litre wine bottle with 20 percent ABV for instance will attract Sh450 in excise duty from Sh243.43 at present, an increase of Sh206.57.
Excise duty on beer brands such as Tusker and White Cap (500ml bottles) with an ABV of 4.2 percent each will for instance fall to Sh47.25 from Sh71.22 at present.
This could lift flagging beer sales, which saw East Africa Breweries Limited reported 11.79 percent profit drop.
The Treasury has also reinstated plans to impose a five percent withholding tax on interest earned from infrastructure bonds with tenures of at least three years.
President William Ruto abandoned the finance bill for this fiscal year on June 26, and later dismissed most of his cabinet, bowing to pressure from protesters who had stormed parliament and launched demonstrations across the country.
The bill had contained new taxes and hikes to raise an extra Sh346 billion--levies that the protesters fretted would hit workers struggling with surging living costs and negative real wages.
After the bill was dropped, the government cut spending and widened the fiscal deficit to the discomfort of the IMF.
“Performance since the last reviews of these arrangements has weakened. While accumulation of foreign exchange reserves and inflation were better than expected, the fiscal performance fell significantly short of the targets. The revenue and export underperformances increased debt vulnerabilities while the implementation of several reforms was also delayed,” noted IMF First Deputy Managing Director Gita Gopinath on Thursday.
“In this context, a difficult adjustment path lies ahead. A credible fiscal consolidation strategy remains central to addressing debt vulnerabilities while protecting social and development spending. Reforms to make the tax regime more efficient, equitable and progressive as well as strengthening accountability, transparency and efficiency of public finances will help garner political and societal support for reforms.”
The approved disbursement is however lower than the expected Sh113 billion by the National Treasury, indicating a slash to the release from the combined seventh and eighth reviews of the programme.
The government has been caught between the competing demands of hard-pressed citizens and of lenders such as the IMF, which is urging the government to cut deficits to obtain more financing.
Besides the new taxes, the Treasury is targeting producers of products like milk, bread and maize flour in a review that would deny the firms billions in tax refunds but keep the retail prices of the commodities unchanged.
The products would remain VAT free (VAT exempt) but their producers would no longer have the window to seek refunds to recover input value added taxes.
Kenya Revenue Authority (KRA) has also started integrating its system with banks, money remittance firms and payment service providers like M-Pesa in fresh efforts to weed out tax evaders and boost revenue by billions of shillings.
It is also seeking to expand the tax base and rope in more small businesses and the informal sector to raise additional revenues.
