Finance Bill: MPs' headache in search for extra Sh302bn
Members of the National Assembly during a sitting in June last year.
What you need to know:
- The Bill is currently before the Finance Committee for public input ahead of its enactment by the House.
- The Bill proposes to remove bread from the list of zero-rated to vatable goods but LSK, KPMG and Bowmans are opposed.
The National Assembly’s Finance and National Planning Committee will have to strike a balance between the Finance Bill, 2024 and people’s expectations, with concerns growing over some proposals.
The Bill seeks to raise an additional Sh302 billion to finance the Sh3.9 trillion budget for the 2024/25 financial year amid fears that proposed punitive taxes would likely export jobs to neighbouring countries.
On Wednesday, the Law Society of Kenya (LSK) and financial consultants KPMG said unless some of the tax proposals in the Bill are amended or deleted, Kenyans will suffer the vagaries of a stunted economic growth. But even as the lawyers and experts spoke, Molo MP Kimani Kuria – the Finance Committee chairman – indicated that his team would ensure Kenyans don’t get the short end of the stick, saying some sectors must be protected.
Mr Kimani said the committee would be seeking to do away with the proposals that were in the Finance Bill, 2023 but rejected by the House.
“There are concerns about tax rates being high. But I want to assure Kenyans that the ongoing public hearings on the Finance Bill 2024 are not for formalities,” said Mr Kuria.
Finance Committee
The Bill is currently before the Finance Committee for public input ahead of its enactment by the House.
But even as the government seeks to tax more to finance the budget, fears abound that the proposed taxation measures may lead to low revenue collection. It is projected that the 2023/24 financial year will have a shortfall of at least Sh300 billion due to punitive taxation measures in the Finance Act 2023.
“We commit to engage all Kenyans as we are doing and where it is inevitable, we will propose amendments to be considered by the House.” He also noted that the committee will consider throwing away some of the proposals that were part of the Finance Bill 2023, but rejected by the National Assembly and have been reintroduced.
“Unless there is proof beyond reasonable doubt of material change, the amendments which the committee recommended otherwise but have been reduced will likely suffer the same fate,” the committee chair said.
The Bill proposes to remove bread from the list of zero-rated to vatable goods but LSK, KPMG and Bowmans are opposed. The three were in agreement that the proposal should be deleted from the Bill noting that the amendment will make bread more affordable for Kenyans.
They also noted that the introduction of VAT on various financial services, including the assignment of debt for consideration, will “notably” increase the cost of accessing these services.
“Debt restructuring, which often involves the assignment of loans and receivables, is crucial for businesses to secure financing, expand, and maintain sustainability,” noted LSK.
“Imposing VAT on these services will deter Kenyan businesses from restructuring their financing arrangements due to the additional, likely irrecoverable, VAT cost. Moreover, the proposed VAT on other financial services will raise the cost of banking services, discouraging their use and potentially fostering a cash-based economy.”
E-mobility sector
According to LSK, zero-rating of these e-mobility related supplies was introduced by the Finance Act, 2023 in an effort to encourage the use of renewable energy within the transportation sector.
“The removal of this incentive is likely to result in reduced growth within the e-mobility sector and goes against the government’s green agenda and the government’s commitment to provide tax stability by not reversing laws on a yearly basis,” LSK says.
According to KPMG, the introduction of Excise Duty on crude vegetable oils and refined oils will increase the cost of the vegetable oil products making it expensive for the citizens.
Also to be affected is soap made from vegetable oils, which will also be expensive as the cost will be passed to the citizens. Cooking oil is not an isolated product but a fundamental ingredient of food items consumed by many Kenyans, such as bread, mandazi, chapati and chips among others, meaning that the tax will cause a cascading effect.
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 on the current Sh65.
On cooking oil, consumers will pay Sh160 more per litre for edible oil if a proposal of 25 per cent on excise duty on both raw and refined vegetable oils sails through. Manufacturers of edible oils in Kenya yesterday told the National Assembly committee on trade, industry and cooperatives that they will have no choice but to pass the cost to consumers in the event the Bill is passed in its current form.
According an analysis presented before the committee by the manufacturers, the retail price of a litre of edible oil which is currently retailing at Sh202 will increase to Sh335 resulting in an increase of Sh135
At the same time, the manufacturers told MPs that one kilogram of cooking fat which is currently retailing at Sh107 will shoot to Sh162 representing an increase with Sh25. According the manufactures, the price of 20 litres cooking oil which is currently retailing at Sh4, 046 will increase toSh6, 737 representing an increase of Sh2, 691.
The passage of the Bill in its current state will also see the price of 10kg carton of cooking fat increase from the current Sh2, 132 to Sh3, 230 representing a Sh1, 098 increase.
Give incentives
“Edible oil constitutes a substantial cost in the preparation of foods and delicacies for hotel and catering industries. This increase in cost will increase the cost of hospitality and have a significant impact on our tourism industry,” Mr Vimal Shah of the Bidco oil refineries told MPs
Mr Shah who was accompanied by Rajan Malde, Director Pwani Oil products and Fouad Saheed and other representatives of the 13 oil refineries criticised the government for neglecting the local manufacturers and instead prefer to give incentives to foreign companies. “As local manufacturers, we have zero incentives, the incentives are only given to American companies and others,” he added. Mr Shah said while other countries such as Tanzania and Uganda are giving local manufacturers incentives, Kenya is introducing more levies to them.
“Kenya has more levies than Uganda and Tanzania, we are not competitive at all. We are not opposed to taxes but why can’t we tax the end product because when you tax at the production level, you kill the local manufacturers,” Mr Shah said.
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.
The Finance Act, 2023 revised the IDF charged on imports, downwards from 3.5 per cent to 2.5 per cent for all imported goods. However, the Finance Bill 2024 is now proposing to increase the IDF to 3 percent.
“This proposal, if adopted, will increase the cost of importation of goods into the country and will increase the uncertainty and instability brought about by the change in laws affecting imports,” warns Bowmans.
