Tougher times ahead as MPs pass bill increasing taxes

The Bill that was passed during a special sitting yesterday alters measures enacted in April to cushion Kenyans against the effects of the Covid-19 pandemic on the economy.

The greatest pain is the return of value added tax (VAT) to the pre-coronavirus rate of 16 from 14 per cent as the government aims to collect at least Sh78 billion between January 1 and June 30, 2021.

The alteration to VAT is projected to net at least Sh25 billion.

Protect consumers

Though the passage is a boost to the government in raising Sh841 billion to bridge the deficit in this financial year’s Sh3 trillion budget, Kikuyu MP Kimani Ichung’wah said businesses would pass costs to buyers.

“We ask the government to institute measures that will protect consumers,” he said.

Reducing VAT in April without follow-up measures meant the benefits would not to trickle down to ordinary people, Mr Ichung’wah added.

The Finance and National Planning Committee, in its report on the Bill adopted by the House, noted the same.

“A review of the VAT reduction...shows consumers have not benefited through commensurate lowering [of] the cost of goods and services,” the report says.

Reduced taxation

While businesses are keen to keep the profits that came with reduced taxation, they are quicker to pass on to consumers the burden that comes with the increase.

The Kikuyu MP wanted to know why Treasury went against the President’s announcement in September that VAT remains at 14 per cent.

Other than VAT, the passage of the Bill will see the corporate tax rate revert to 30 from 25 per cent, with the same applying to individual income tax or Pay As You Earn (Paye).

The Bill, retains the 100 per cent tax exemption for those with monthly incomes of Sh24,000 and below.

There is also the Sh58.1 billion economic stimulus programme, such as Kazi Mtaani, meant to cushion vulnerable citizens and improve liquidity.

The reversal of the individual income and corporate rate for non-resident to 30 per cent is expected to generate more than Sh28 billion.

Kiminini MP Chris Wamalwa questioned the timing of the amendment even as his Garissa Township colleague Aden Duale said the Bill is a difficult choice to be made.

“I wonder what the government based on to amend the Bill. We are not solving anything because coronavirus cases are rising,” the Kiminini lawmaker told the House. 

[email protected]