President William Ruto’s proposed taxation plan in 2023/24 will worsen the cost of living situation for Kenyans, tax experts have cautioned.
The experts from PriceWaterhouseCoopers (PWC) observed that the proposal to raise Value Added Tax (VAT) on petroleum products from 8 to 16 percent will have ripple effects across the economy.
“VAT on petroleum has always been the intention of the government. These taxes tend to be regressive, it doesn’t matter whether you are a boda boda rider or somebody using petroleum products for manufacturing. You can expect the cost of living to increase because of this change,” said Mr Job Kabochi, Partner, Indirect Tax Services.
In a media briefing to unpack the impact of proposals in the Finance Bill 2023, the tax experts yesterday noted that several proposals in the Bill are likely to have adverse consequences, cautioning Parliament against passing it into law as it is.
Mr Kabochi, for instance, noted that a proposed raise of excise duty on fees charged for money transfer from 12 to 15 percent is likely to encourage parallel systems for Kenyans to send money, should they feel mobile money wallet charges are too much.
“When you think about why some of these solutions were created in the first place, it was about financial inclusion. Have we sorted the challenge we had about the unbanked and their inclusion in the financial services landscape?
“Kenyans are very innovative and if you are going to find it expensive sending money through the traditional money transfer platforms, you can expect an industry is going to grow. There could be a parallel system that thrives in this kind of an environment,” Mr Kabochi said, also noting that the proposal goes against the government’s citizen-uplifting initiatives such as the cash transfers to the poor and elderly.
The experts also faulted a proposed tax payment time reduction on some taxes to 24 hours, which they argue could lead to many tax disputes due to compliance difficulties.
Among taxes to be paid within 24 hours is rental income tax, which has been brought down from 10 to 7.5 percent.
“This is obviously highly impractical because what they are trying to do here is introduce real-time taxes. Real-time taxes cannot just be applied to any tax especially taxes being done on a manual basis. This is going to be very messy not just on rental but any tax you pay on resident taxes. Half our jobs are going to be working for KRA because all you are doing is filling forms and remitting taxes on a daily basis; it’s KRA putting the burden of collection on the taxpayer,” said Mr Titus Mukora, Partner, Tax & Transfer Pricing.
Ms Shreya Shah, a senior tax manager, also noted a likelihood of double taxation in the proposed National Housing Development Fund’s 3 percent cut on basic salary, while also warning that the tax is likely to discourage formal employment.
“Is there some sort of a double tax element after you opt to receive your contributions after seven years? Because the contributions are payable from income that has already been taxed and after seven years you will be taxed again when you opt to receive your cash.
“The introduction of these deductions will further hit the take-home and will be a burden to employers with an increased cost of employment which may lead to potential reduction in employment opportunities,” Ms she said.
Among actions they argue may not yield more revenues are the raise of turnover tax from 1 to 3 percent, the 3 percent digital asset tax that they say will face compliance issues from multinationals and the proposed 15 percent tax on digital content creators.
They said proposed taxes in the Finance Bill, together with other proposed deductions outside the Finance Bill add to employees’ burden, even as inflation continues to eat into their purchasing power.
