Paul Okong’o, a jua kali artisan in Nairobi’s Kamkunji area, is going through the toughest, loss-making quarter of the year since he started his business in 2010.
His income has drastically shrun, as he is unable to send his metal products to a large chunk of his customers outside Nairobi, thanks to movement restrictions meant to curb the spread of Covid-19.
The father of two admits that he and his colleagues have made hefty sacrifices to make ends meet. Skipping meals and walking to and from work is now normal. Most of them reside in the informal settlements of Eastlands, where some have rent arrears of months.
Mr Okong’o now feels that the worst may have come with the proposed 2020/21 budget read by Treasury Cabinet Secretary Ukur Yatani in the National Assembly on Thursday. The budget slapped citizens with higher taxes on household goods, including food and cooking gas.
“That the government promised to help us access credit facilities is a good thing, but the banks will give loans on a case-by-case basis. I, like many others, already have trouble repaying my bank loan because business is slow. I will have to find alternative means to survive the rising cost of living,” Mr Oko’ngo. said
As if that is not enough, Mr Okong’o is expected to pay one per cent of his annual turnover as tax, whether he makes profit or not, a move he considers a rip-off for small companies.
Mr Collins Owiti, the team leader of the Uhuru block, one of about 40 jua kali divisions in Kamkunji, said they have learnt not to trust government promises as “they often disappoint”.
“The goodies offered up there do not trickle down to us. They either fail to implement or the goodies are absorbed by the jua kali leaders. Basically, we are on our own, digging deeper into our pockets to meet every day needs,” he said.
The government promised to purchase Sh3 billion worth of doors and windows from the informal sector as part of the affordable housing project. They hope the money will reach them.
The new budget has received mixed reactions from taxpayers, who will foot the Sh1.6 trillion tax revenue burden in a year in which most business are hurting from a crisis with no end in sight.
But it is the move to tax retirees, loss-making companies and youth who have turned to making money online to survive that has shocked many.
If the budget is passed, income from a registered homeownership savings plan, income from the National Social Security Fund (NSSF), bonuses, overtime and retirement benefits will not be paid without the taxman getting his pound of flesh.
Mr Elly Mundu, a Kenya Railways retiree, Mr Joel Kimetto, formerly of Unilever, and Mr Richard Maritim, a retired teacher, called on the government to rescind the decision, noting that they are vulnerable members of the society, a number of whom channel their little earnings to treat old-age illnesses.
“We were taxed when we were working. And the international rule has always been that pension should not be taxed. The government is too hungry for money,” noted Mr Mundu who has been on pension since 1998, although no money has been remitted for the past 10 months. He added that some retirees earn as little as Sh3,000, which is barely enough to sustain them.
Mr Kimetto said the proposal to tax them was tantamount to double taxation, which is “morally wrong”. He added: “At an advanced age, many medical needs arise at a time when company insurance covers no longer cover our bills. In short, the government should find money from elsewhere”.
Households that had switched to using cooking gas because it had become more affordable should also prepare to dig deeper into their pockets if they plan to continue using it.
With the reintroduction of 14 per cent VAT on liquefied petroleum gas (LPG), consumers who were paying about Sh1,000 for the six-kilogramme cylinder should expect this to go up by about Sh150. Other goods for clean cooking such as stoves and cookers will also cost more.
These tax measures are expected to have a ripple effect on Kenyans who depend on menial jobs, especially in major towns, to survive.
Already, casual workers commonly known as mama fua, who undertake household chores at a fee, have gone for days without work.
Ms Celestine Atieno, 50, who lives in Kibera and washes clothes in the neighbouring Lang’ata estate, says the job is no longer reliable.
“I came here at 7am and it is now midday without hopes of getting a job. I was not lucky yesterday, too. Since I am both the mother and father of my children, I can tell you that we will sleep hungry tonight unless a miracle happens,” said the single mother of five.
Also to bear the tax burden are online traders doing business in Kenya, whether local or foreign. This is after the introduction of a new digital service tax at the rate of 1.5 per cent of the gross transaction value.
At the moment, a concessional, residential rental income tax of 10 per cent is only applicable for annual rental income of between Sh144,000 and Sh10 million. Treasury has amended this and shifted the upper limit from Sh10 million to Sh15 million.
This should be good news to landlords who pay taxes since it would enable more of them to enjoy lower tax rates. Through this proposal, Treasury hopes to increase compliance in the real estate sector, which has for decades not carried a fair share of the tax burden.
A new tax, to be known as minimum tax, has also been proposed to be charged on gross revenues of all loss-making companies.
In the past, companies that made losses were spared the burden of paying corporation income tax. Now, they will be required to pay one per cent of their revenue in tax, irrespective of whether they make a profit or not.
But businesses will pay the higher of either minimum tax or instalment tax, which means that the taxman will be the net beneficiary whichever way.
Some fees previously exempted will now be taxed. They include entrance fees or annual subscriptions paid to a trade association, and club subscriptions paid by an employer on behalf of an employee.
Also to be taxed are legal fees and other incidental expenses relating to authorisation and issuing of shares, debentures and similar securities offered for purchase by the general public at the Nairobi Securities Exchange (NSE).
Consumers of spirits and liquors with high alcohol content should expect to pay more to enjoy their favourite drinks.
But farmers will have something to smile about with the exemption of VAT on maize seeds. The exemption is, however, likely to disadvantage local producers of such seeds.
Appealing to Parliament to endorse the taxes, Mr Yatani noted that the government is keen on recouping revenue losses that had come with recent tax reviews to cushion Kenyans from the negative impact of the Covid-19 pandemic. This is akin to giving from one hand and taking it away with the other.
The CS said that in 2018, revenue forgone by government through tax incentives and exemptions amounted to Sh535 billion, or 6 per cent of GDP, which is considered one of the highest globally.
“Whereas these tax incentives are well intended, they have limited the capacity of government to fund critical expenditures,” Mr Yatani said.
“In addition, a critical review of the incentives shows that consumers have not benefited through commensurate reduction in the cost of goods and services.”
He noted that some of these incentives had given undue advantage to some sector players, thus entrenching unfairness and stifling competition.
In the new Finance Bill, Treasury has proposed to amend some sections of the Income Tax Act, Value Added Tax Act, Excise Duty Act, Miscellaneous Fees and Levies Act, Tax Appeals Tribunal Act and the Tax Procedures Act. It has also proposed amendments to eight financial-sector statutes to address various aspects related to the policies underpinning the budget.
The statutes up for review include the Public Roads Tolls Act, the Capital Markets Act, the Insurance Act, the Standards Act, the Retirement Benefits Act, the Kenya Revenue Authority Act, the Roads Maintenance Levy Act and the Insolvency Act.
The amendment to the Tax Procedures Act seeks to introduce an amnesty for taxpayers who may choose to disclose their tax liabilities between July 2015 to July 2020. They will be granted relief from paying penalties and interest. The amnesty will be granted at 100 per cent waiver of penalties and interest if payment of assessed or disclosed tax is made in the first year of being granted relief, 50 per cent in the second year and 25 per cent in the third year. The amnesty will not apply to ongoing processes such as audits, investigations or litigation.
