Major issues in Ruto’s Finance Bill 2024 and the pain points
The proposal to slap tax on personal vehicles is one of the emotive issues in the Finance Bill 2024.
What you need to know:
- Removal of the tax exemption of capital gains relating to transfer of title of immovable property to a family trust has also been a key issue.
The increment of Excise Duty on Financial services and money transfer services from 15 per cent to 20 per cent will increase the cost of financial services.
Stakeholders have raised major contentious issues in the Financial Bill 2024 that are likely to make life more difficult for Kenyans if the proposed legislation is passed in its current form.
As public participation in the Bill enters day five tomorrow, the proposal to introduce 2.5 per cent motor vehicle tax, -Reclassification of the VAT status of ordinary bread from zero rated to vatable at 16 per cent and the amendment of section 51(2) if the Data Protection Act have been cutting across as among concerns by stakeholders.
Removal of the tax exemption of capital gains relating to transfer of title of immovable property to a family trust has also been a key issue.
The Bill, which provides revenue raising measures to finance President William Ruto’s second full budget for the financial year 2024/2025, has already been termed as punitive by the opposition.
A sample of various memorandums presented to parliament by the Sunday Nation indicates that most stakeholders are opposed to the motor vehicle tax as it risks burdening the majority of Kenyans who will bear the cost passed to them by public transporters.
Double taxation
About 40 stakeholders who have so far presented their views on the Bill have argued that the move amounts to double taxation and is also punitive to persons owning private vehicles since they do not generate any income by using their cars but will be compelled to pay the tax.
“This is a very punitive proposal that will burden many taxpayers, who are already heavily taxed, including having to contend with the hefty taxes that they pay on importation of the same motor vehicles in addition to other numerous levies,” PKF Taxation limited services says in its memorandum. The firm also expressed concern over Section 51(2) of the Bill seeking to amend the Data Protection Act by including an exemption from Data Protection principles in relation to personal information where it is necessary for assessing, enforcing, or collecting any tax or duty as stipulated in a written law.
“By allowing the commissioner to access personal data without adherence to data protection principles, an individual's private information could be exposed and misused. This proposal grants immense powers to the commissioner,” argues the firm.
It also opposed section 35 (b) of the Bill which seeks to reclassify the VAT status of ordinary bread from zero rated to vatable at 16 per cent.
“This will cause a significant increase in the cost of living for mwananchi since bread is a common food item in most households in Kenya,” it says.
The Institute of Certified Public Accountants of Kenya (ICPAK) also opposed the motor vehicle tax saying it will negatively impact insurance penetration which is already very low in Kenya.
It also warned the move will have negative ripple effects to other facets of the economy.
The accountants also warned that the increment of Excise Duty on Financial services and money transfer services from 15 per cent to 20 per cent will significantly increase the cost of financial services.
National tax policy
“From a national tax policy, the focus of excise tax has been to deal with goods that have negative externalities. Imposing excise tax on financial services is already punitive on tax payers and a further increase will increase the cost of business,” they said.
They also opposed Clause 23 the Bill that proposes to remove the tax exemption of capital gains relating to transfer of title of immovable property to a family trust arguing that transfer of titles of immovable property to a family trust saying it is not a capital gain since the beneficial ownership does not change.
“Family estates are typically established for estate planning and asset protection. They are not commercial transactions but rather a means to manage and protect family wealth. Therefore, applying several taxes on these bodies may negatively impact the social and economic welfare for many families,”
Kenya Association of Manufacturers (KAM) warned that the motor vehicle tax will increase taxpayers' burden who also have to contend with various taxes and levies at the time of purchasing the motor vehicle, high insurance costs, and its maintenance.
They also argued that persons with private vehicles not being used for commercial purposes are not generating any income from those vehicles hence should not be subjected to the tax.
The association also warned that the introduction of 16 VAT on bread will increase the cost of a 400g loaf thereby making it unaffordable to most Kenyans.
“Demand for bread will fall drastically since increasing the price of staple products is the last thing we all need especially after the turmoil of the last year with the Covid-19 pandemic,” reads KAM memorandum.
Motor vehicle tax
Deloitte also opposed the motor vehicle tax saying it will negatively impact owners who are already struggling with reduced disposable income due to high fuel prices coupled with regular repairs and maintenance costs.
The firms also opposed Clause 39 of the Bill which proposes to repeal Section 14 of the Excise Duty Act, 2015 (“EDA”) that provides for relief of excise duty on raw materials used to manufacture excisable goods and purchase of bulk data by licensed internet data providers for resale.
It argues that relief of excise duty under Section 14 of the EDA is aimed at cushioning manufacturers from double taxation of excise duty on raw materials used in the manufacture of excisable goods hence its repeal as proposed in the Bill would amount to double taxation.
KPMG International called on MPs to consider lowering the rate for the motor vehicle tax to one percent of the value of the motor vehicle and remove the cap as to the maximum amount taxable.
The Bill proposes a tax amount of a minimum of Sh5, 000 and a maximum of Sh 100,000. The value will be determined based on different factors such as make and model
Manufacturers of edible oils in Kenya have also warned that the proposal of 25 percent on excise duty on both raw and refined vegetable oils contained in the Bill will lead to an increase of the price of edible oil by Sh160 per litre.
This comes as the alcoholic beverage manufacturers want Parliament to reduce the Treasury proposal to impose excise duty on spirits from Treasury’s proposal to impose Sh16 per centilitre of pure alcohol to Sh10.68.
The association on Friday told MPs that the proposed increase in rates will result in higher consumer prices for spirits.
[email protected]. Additional reporting by Edwin Mutai
