Public outcry and pressure from the Opposition and various organisations forced the National Assembly's Finance and National Planning Committee to climb down and propose amendments to the Finance Bill, 2023.
MPs reviewed downwards the controversial three per cent housing levy. However, they upheld plans to double VAT on petroleum products.
The bill seeks to raise at least Sh130 billion in additional revenue to finance the Sh3.6 trillion budget for the 2023/24 financial year.
A member of the committee, who did not want to go on record, said the committee chaired by Molo MP Kuria Kimani, agreed to amend the bill to reduce the proposed three per cent housing levy to 1.5 per cent.
“Based on the views presented to the committee by Kenyans and the debate the proposal has generated in various media forums, the committee was of the view that the clause should be proposed for amendment in our report,” the MP said.
They also proposed changes to the clause on the 15 per cent digital levy on content creators, which they want reduced to five per cent, and plan to increase rental income tax from the current 7.5 per cent to 10 per cent.
However, they left the other clauses in the report on the Bill, which will be tabled in the House today, open for MPs to suggest their own amendments. The concession on the controversial clause that has the country talking came during a committee meeting in Naivasha to finalise its report.
It came despite a tough stance by President Ruto and his deputy Rigathi Gachagua that the bill should be passed in its current form. But Nation could not determine yesterday whether or not the Sh5,000 limit for both employee and employer would still apply. Curiously, the committee did not propose changes to other controversial clauses in the bill that will also make life difficult for Kenyans.
Some of the clauses that the committee has not touched include the proposal to increase VAT payments on maize flour and pharmaceutical products, increased duty on imported cement and sales tax on small and medium-sized enterprises.
There is also a proposed income tax adjustment to impose 35 per cent pay-as-you-earn (Paye) on those earning Sh500,000 a month, despite threats from pilots to down tools, taxation of per diems at 30 per cent and a tax on beauty products.
Under the proposed Housing Fund, the employer shall remit both employee and employer contributions to the National Housing Development Fund before the ninth day of the month following the month in which the deduction was made.
To achieve this, the Bill has proposed a new Section 31B in the Employment Act, 2007, which provides that an employer shall pay to the National Housing Development Fund established under Section 7 of the Housing Act.
For employees who are eligible for affordable housing, the contributions will accrue to the employee and will be used to finance the purchase of a house under the affordable housing scheme. Employees who do not qualify for affordable housing will receive their funds after seven years from the start of contributions or upon reaching retirement age.
Experts argue that the introduction of additional deductions from employees' salaries will further reduce their take-home pay.
“This proposal will overburden employers with increased employment costs and may lead to the loss of current or potential employment opportunities,” audit firm PricewaterhouseCoopers said in its memorandum to Parliament. At least three members of the committee, who spoke on condition of anonymity, told Nation they have President Ruto's blessing to make the changes.
What will also set the committee against Kenyans is the proposal to change the status of staple foods such as maize, cassava and a number of other flours from duty-free to standard.
The bill also seeks to change the status of pharmaceuticals, agricultural pesticides and fertilisers, and the transport of sugar cane from farms to mills, from zero-rated to tax-exempt.
This effectively increases the cost of medicines, healthcare and food, including locally produced sugar, and goes against Kenya Kwanza's oft-stated commitment to subsidise production.
The Kenya Kwanza administration also wants to increase the duty on imported cement, which will send a signal to local producers to raise their prices.
Beauty products such as wigs, false beards, eyelashes, human hair and artificial nails, among others, will not be spared as their taxes will rise from Sh0.6 to Sh2.5 per stamp, an increase of about 316 per cent. Mr Kuria on Sunday hit out at some of his colleagues for politicising the Bill.
"It is ironic to hear some MPs criticising the bill, but they have every right to table amendments if they have a better idea and we will listen to them," he said.
A significant number of lawmakers from the ruling Kenya Kwanza Alliance are expected to support the bill, despite widespread protests across the country. On June 5, President Ruto dared MPs to oppose the Finance Bill.
Privately, MPs say some sections of the bill are unpopular with voters but they dare not oppose the President on the matter.
"There are sections that we naturally oppose but Dr Ruto's stance has made it impossible for us to go against the grain," said a North Rift MP.
Reporting by Vitalis Kimutai, Macharia Mwangi and David Mwere
