Mixed bag as Treasury's new tax plans go to the National Assembly

President William Ruto and the Treasury CS John Mbadi during a joint session of Cabinet and Principal Secretaries at State House, Nairobi.[File, Standard].

A plan by the government to raise Sh178 billion in revenue through amendment of various tax laws has sparked debate, with a section of MPs and clergy weighing in.

The proposed measures by the Treasury, which introduce new taxes but also offer some reliefs and exemptions to sections of Kenyans and businesses, are in Parliament for public participation ahead of debate and enactment.

The proposals are in a raft of Bills, key among them the Tax laws (Amendment) Bill 2024 and the Business Laws (Amendment) Bill 2024.

The Treasury’s proposals have, however, been met with mixed reactions from leaders and members of the public.

The amendments intend to, among other things, introduce a new tax known as the Digital Marketplace Levy that will lead to taxing of income derived from digital content monetisation, taxi-hailing services, food delivery and even freelance work.

The Tax Laws (Amendment) Bill tabled before the National Assembly by the Leader of Majority Kimani Ichung’wah also seeks to introduce a five per cent tax on interest earned by investors who purchase infrastructure bonds, both residents and non-residents.

Infrastructure bonds are government securities sold by the Central Bank of Kenya in form of debt and are used by the government for the financing of specified infrastructure projects.

The Bill further seeks to introduce a 16 per cent tax on aeroplanes, helicopters, spacecraft and specially designed locally assembled motor vehicles that are used for the transportation of tourists. Park national reserves entry fees for both residents and non-residents will also attract a 16 per cent tax.

Additionally the Bill has proposed a 15 per cent tax charged on social media and Internet services. This means that should the proposal sail through Parliament, Internet and social media users will have to contend with increased costs of up to 15 per cent to access the services.

Under the new tax proposals, the State will further impose excise duty on imported electric transformers and certain vehicle parts at the rate of 25 per cent.

On the flip side, the Treasury has proposed various tax exemptions, such as exemption of pension payments including gratuity and other payments made to registered pension funds entities such as NSSF from income tax.

Materials for use in the manufacture of baby diapers, sanitary towels and tampons will also get tax exemptions if the Bill sails through. This will also be the case for imported inputs and raw materials supplied to manufacturers of agricultural pest control products, certain fertilisers, and inputs or raw materials for manufacturing fertiliser.

And in a bid to bolster the local assembling industry, the government is seeking to exempt locally assembled electric vehicles from excise duty.

Leaders from across the country are however spearheading the charge against the introduction of the new taxes arguing that they will not only  burden Kenyans, with a possibility of re-igniting the anti-tax protests, but are also prohibitive.

Mukurweini MP John Kaguchia has since registered his reservations against the proposals that seek to plug the country’s budget deficit that stands at Sh500 billion. In particular, Mr Kaguchia says he is opposed to the reclassification of supplies for school feeding programmes from tax exempt to taxable items, and the imposition of duty on electric transformers and parts at 25 per cent arguing that it would make it expensive to electrify the nation.

“Increasing the Railway Development Levy from 1.5 per cent to 2.5 per cent will have adverse effects on the cost of all imports, including imports of goods that cannot be manufactured locally. On the taxation of entry fees to national parks and reserves, why tax a payment being made to the same government? What kind of reasoning is this?” Posed the lawmaker.

Through a post on his Facebook page, Kaguchia also criticised the proposal to restore the Kenya Revenue Authority (KRA)’s Commissioner General’s authority to provide tax relief, noting that this would be misused “as witnessed before.”

“Proper regulation and policies should instead be developed. More engagement of these proposals ought to have taken place before these proposals are published. I would ask the Finance and National Planning Committee to withdraw these proposals from Parliament and only retable after proper consultations are done,” he wrote.

“The Finance Bill 2024 that Kenyans rejected is back, but I am happy that some Kenya Kwanza MPs from Mt Kenya are standing against it. This time we are rejecting it before it is quietly reintroduced in Parliament,” Mumias East MP Peter Salasya said.

The clergy, through a statement by the Kenya Conference of Catholic Bishops (KCCB), also called out the Ruto administration for overtaxing Kenyans.

“Our problem is that Kenyans are being unreasonably overtaxed. We are vehemently concerned by the continued myriad of new tax regimes constantly emerging from day to day. It seems to be a hidden way of reintroducing the rejected Finance Bill 2024. We must listen keenly to the cry of the Kenyan people,” said KCCB chairman Maurice Muhatia.

But appearing before the National Assembly’s Finance and Economic Planning Committee on Friday, National Treasury Cabinet Secretary John Mbadi defended the introduction of the proposed Significant Economic Presence tax.

“You will find that some people are doing business and drawing income from this country without physically being here,” Mbadi said.