State makes concessions on new taxes but...

An elderly woman is assisted by protesters after collapsing due to tear gas during a demonstration against the Finance Bill 2024 in downtown Nairobi, on June 18, 2024. [AFP]

President William Ruto on Tuesday succumbed to relentless and unprecedented public pressure and acceded to recommendations by the National Assembly Finance and National Planning Committee to drop some of the punitive tax proposals in the Finance Bill 2024.  

However, Kenyans will still have to contend with some of the tax measures that were made in the original Bill that was tabled in Parliament in early May and had been criticised as likely to leave ordinary wananchi worse off amid a biting high cost of living crisis.  

Among the proposed taxes that have been dropped following the public push include the 2.5 per cent annual motor vehicle tax, the 16 per cent Value Added Tax (VAT)on bread, Eco Levy on locally manufactured products and excise on locally assembled motorcycles. It has also dropped the proposal to allow the Kenya Revenue Authority (KRA) to have unlimited access to personal data for tax assessment purposes. 

The Committee chaired by Molo MP Kuria Kimani has, however, recommended hiking the Road Maintenance Levy, which is expected to increase the cost of fuel and in turn the cost of transportation. 

After a Kenya Kwanza parliamentary group meeting held at State House, Nairobi yesterday morning, Kimani said the committee, which retreated to Naivasha to compile its report, had listened to Kenyans during the public participation process.  

During the public participation hearing, ordinary Kenyans, expert groups, lawyers and industry players were all united in opposing attempts by the National Treasury to expand the tax net by introducing new taxes, changing the taxation structure and revising other taxes upwards to generate Sh342 billion to, among others, reduce the budget deficit to avert more borrowing.  

They said the move will make the lives of already overtaxed Kenyans more miserable and increase the cost of doing business in the country leading to factory closures, migration of businesses and layoffs.  

“The proposals that were brought to the National Assembly and the ones that we are proposing to the house are two (different) documents. The exercise we did on public participation was not in futility,” said Kimani.   

“When we started the public participation of the Finance Bill, we made a promise that it would not be an exercise in futility. We have listened to the views of Kenyans and we are in agreement that there are two things that we must do. One is that we need to protect Kenyans from the increased cost of living and, therefore, the proposed 16 per cent VAT on bread has been dropped.”  

He added that the committee had also recommended the removal of the clause imposing a 25 per cent excise duty on vegetable oil.   

The committee also dropped the contentious motor vehicle tax, which would have seen motorists pay a tax of 2.5 per cent of the value of their vehicles in taxes when renewing their insurance.   

“...we have agreed that the Motor Vehicle Tax cannot be amended through the Income Tax Act and also pegging it on insurance would cripple the industry… and therefore that proposal has been dropped,” said Kimani.   

The committee has also spared Kenyans a hike in the cost of mobile money transactions. The Finance Bill had proposed increasing the excise duty to 20 per cent from the current 15 per cent.   

It has also done away with certain aspects of the Eco Levy. The levy will now apply to all finished goods being imported to the country while locally manufactured goods will be exempt from the levy.  

This levy aims to promote responsible waste management but analysts noted it could end up having unintended consequences of squeezing household budgets and hindering access to essential technology.  

The Committee has also said farmers, traders and other businesses with a turnover of below Sh1 million would be exempted from e-TIMS registration   

He also said the committee had backed the slapping of agricultural produce including onions, potatoes and eggs imported with excise duty to protect local farmers.   

The Committee has also exempted locally made boda bodas from excise duty, in what Kimani said would reduce imports and also create a locally thriving local assembly industry.   

And while it has dropped some of the proposals, queries are likely to emerge on other measures that the committee has retained. 

Analysts during the public participation phase noted that aside from the excise duty on vegetable oil, there were other charges that could see a significant increase in the cost of cooking oil. These included excise duty on plastic packaging and the Eco Levy on plastic packaging, which will not be exempt from the environmental safeguard levy that will now be on imported products. All these, manufacturers had warned, could see the cost of cooking oil double. 

While it has entirely dropped the motor vehicle tax, the Kimani-led committee has recommended increasing the road maintenance levy. This will see an increase in transportation costs.