More pain as Ruto raids shallow pockets yet again

President William Ruto arrives for a Press briefing where he nominated new Cabinet Secretaries and Attorney General at State House, Nairobi. [PCS] The government is poised to usher in more pain for Kenyans by imposing new taxes, reigniting public outcry amid a worsening cost of living crisis. In a notice published in the dailies yesterday, National Treasury Cabinet Secretary John Mbadi outlined the new aggressive plans to amend various tax laws to bolster government revenue, as the Kenya Kwanza administration grapples with a fiscal crisis and limited options for additional borrowing. The fresh tax plan reintroduces measures from the previously rejected Finance Bill, 2024 in what is likely to be an acid test for the government. This is because this bold decision comes after President William Ruto declined to assent to the Bill last June amidst unprecedented protests led by younger generations against similar tax measures. Key among the proposed measures is a draft Tax Laws (Amendment) Bill aimed at incorporating providers of ride-hailing, food delivery, freelance, and professional services into the tax framework, targeting the country's vibrant and expanding digital marketplace. "This definition is vital for taxing income generated from businesses operating online or via electronic networks, thereby broadening the tax base to include earnings from digital platforms," Mbadi explained yesterday. The Finance Bill, 2024 had included other services such as rental and task-based services in its digital marketplace tax provisions, raising concerns among those who rely on these sectors for income. The National Treasury intends to introduce a significant economic presence tax, applicable to non-residents earning income from services provided in Kenya through digital channels. This new tax would replace the existing digital service tax, increasing the effective rate from 1.5 per cent to six per cent to align with international standards. Digital market Additionally, the rejected Bill proposed taxing the income of both residents and non-residents operating digital platforms at rates of 20 per cent for non-residents and five per cent for residents, alongside a significant economic presence tax set at 30 per cent of deemed taxable profits. These provisions sparked outrage among the youth, many of whom have turned to the digital economy amid a tight employment landscape. While some punitive taxes, such as those on motor vehicles and an eco-levy, have been shelved, the Treasury aims to restructure excise duties on alcoholic beverages, significantly increasing taxes on wines and beers in what is likely to hit alcohol lovers hard. For instance, the excise duty on wines made from fermented fruits will rise from Sh243.43 per litre to Sh22.50 per centilitre of pure alcohol. Moreover, Mbadi has proposed new excise duties for various imported goods, including a 25 per cent tax on transformers and parts, and 15 per cent on imported ink. Telephone and internet services are also set for a tax hike to 20 per cent which will see the cost of internet and calling services go up, while betting-related activities will be taxed at 15 per cent which will hit hard the gaming industry. In defending the proposals, Mbadi said they were informed by 35 public submissions, emphasising the need for increased revenue to enhance the social and economic well-being of Kenyans amid a challenging debt situation. The collapse of the Finance Bill, 2024 forced the government to adopt austerity measures, though these were insufficient to satisfy the International Monetary Fund which this week urged Kenya to enhance domestic revenue generation to reduce reliance on foreign debt. Although the IMF Executive Board approved a Sh78 billion loan following the seventh and eighth reviews, it expressed concern that the withdrawal of the Finance Bill undermined fiscal consolidation efforts. It noted that while the IMF programme has contributed to reducing inflation and stabilising the exchange rate, the withdrawal of key tax measures has posed challenges. IMF's first deputy managing director Gita Gopinath said there is a need for a credible fiscal consolidation strategy by the Ruto government that protects social spending while addressing debt vulnerabilities.

More pain as Ruto raids shallow pockets yet again

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More pain as Ruto raids shallow pockets yet again

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