Mps walk a tightrope on taxes, budget

National Assembly Finance Committee Chairman Kuria Kimani during the public participation on the Finance bill, 2024 at Hilton Garden Hotel, Mombasa Road on June 5, 2024. [Boniface Okendo, Standard]

Parliament may be forced to review some of the proposals in the Finance Bill 2024 after lengthy stakeholder engagements carried out by the Finance and National Planning Committee revealed the devastating effects if the document is implemented as is.

How to strike a balance between taxing an already overtaxed taxpayer and raising the necessary revenue to meet the growing needs of the government is the daunting task that Parliament faces this week.

The 2.5 percent Motor Vehicle Circulation tax, Eco Levy tax targeting plastics, and the 25 percent Excise Duty on crude palm oil are some of the proposals that Kenyans will be following keenly to see if there will be any changes considering their effect on the cost of living.

The Finance Committee finished collecting submissions on the Finance Bill 2024 from various groups on Friday and has scheduled a public hearing at KICC today as it wraps up the process.

While the committee has promised a balance between the government proposals and public views, history shows that these compromises are rarely made.

The Affordable Housing levy charged at 1.5 per cent of gross incomes for both businesses and employees and the export and investment levy that was introduced in the Finance Act 2023 are examples of how nonchalant Parliament can be to the pleas of financially burdened Kenyans.

But Finance and National Planning Committee chair Kuria Kimani has insisted that a balance will be struck as the legislators deliberate on the proposals.

“I want to assure Kenyans that we will make the best decisions. We do not want to export our jobs,” he said, addressing the fears raised by businesses who out rightly said they would migrate to other territories if the Government does not tame its appetite.

The manufacturing sector, which contributed 7.6 per cent to the country’s Gross Domestic Product will be one of the hardest hit with this document yet these businesses are still recovering from the taxes introduced in the previous financial year.

“We need to align our policies, especially manufacturing and particularly pharmaceuticals, which has the potential and is the largest in the region,” said Kimani.

Eco levy, a new tax introduced in the Bill is one of the issues raised by the Kenya Association of Manufacturers who argue that it will impact the prices of basic commodities like bread due to the increase in the cost of packaging.

“For instance, the Sh150 levy per kilogramme of plastic packaging will increase the cost of a 400 grammes loaf of bread by Sh9 from to Sh74 and a litre of cooking oil by Sh16.81 to Sh316.81,” reads a memorandum by the Association on the impact of the Bill.

During the deliberations of the Finance Act, manufacturers raised several issues to do with taxes singling out the export and import levy which the government introduced saying it would grow local manufacturing sector.

Rai Cement Ltd did implore the Committee against the implementation of the export and investment levy as documented in the Report on Finance Bill. The cement manufacturer argued that this levy would have trade re-direction in favour of Egypt which exports 67 percent duty free clinker to Kenya.

“Cement manufacturers will be forced to close down leading to loss of revenue for the government and individuals will lose their jobs. The levy will have a negative impact on the government agenda of Affordable Housing,” said Rai Cement Ltd.

However, the committee argued against this idea.

“The committee rejected this proposal observing that the introduction of the export and investment promotion levy is aimed at boosting local manufacturing, promote exports, promote the value chain, and create more jobs in the country by providing aggregation centres at the counties,” said the committee report.

A year down the line, data from the Kenya National Bureau of Statistics shows a significant drop in cement production as manufacturers shied from importing clinker, a key ingredient for cement manufacturing.

The data contained in the latest Economic Survey report shows Kenya imported 148,018 metric tonnes of clinker in 2023 compared to 656,499 metric tonnes in 2022.

The volume of imported cement clinkers declined from 656.5 thousand metric tonnes in 2022 to 148.0 thousand in 2023 while iron and steel declined from 1,406.6 metric tonnes to 1,208.1 metric tonnes in the same review period,” reads the KNBS Economic Survey report.

The government’s goal is to grow manufacturing to 20 per cent of the country’s GDP by 2030.

 In the report, Kenya Private Sector Alliance had sought to have the Committee reduce the time landlords are required to remit rental income tax from 24 hours to the 9th day of the following month.

“Proposals may harm cash flows, crate administration and compliance issues and increase costs due to tight payment deadlines,” Kepsa argued.

The Committee while rejecting this proposal amended the time from 24 hours to five working days after deduction.

“This period is sufficient for an agent to remit tax,” the Committee report said.

During this year’s stakeholder engagements, businesses fired warning shots at the government predicting job losses and closure of firms in favour of other markets in the East African Community should the Bill be passed as is.

The Motor Vehicle tax charged to be charged 2.5 per cent of the value of the vehicle is one of the clauses that the Kenya Private Sector Alliance (Kepsa) has proposed a revision.

in higher prices for consumers,” said Kepsa.

The Motor Vehicle tax is being introduced by amending the Income Tax Act which Kepsa noted that the new levy is not an income which may result in it being fought in court.

“The Income Tax Act is essentially for income generated. That is what we are trying to see how best it can be properly anchored in law,” noted Mr Kimani during the stakeholder engagements.