Treasury secretary Henry Rotich is expected to hit ordinary
consumers and high-income earners hardest as he unveils new tax measures
to finance his Sh3 trillion budget.
Mr Rotich has
largely played his hand on the VAT law where he has used the Tax Laws
(Amendment) Bill, 2018 to introduce new measures expected to yield
billions of shillings in new tax revenues.
He has also
proposed an overhaul of the income tax regime to charge high-income
earners more in a Bill he is due to submit to Parliament this afternoon.
Tax
experts say excise therefore remains the one corner from where Mr
Rotich can spring a surprise on Kenyans when he reads his budget speech
this afternoon. This could come in the form of allowing adjustments on
the tax for inflation as allowed by the law.
“He is unlikely to deviate much from the proposals he has
already laid out in the Tax Amendment Bill and the draft Income Tax
Bill, but he has the opportunity to adjust excise for inflation this
year,” said PricewaterhouseCoopers (PwC) partner and head of tax in
Kenya and East African markets Stephen Okello.
Mr
Rotich is expected to present to Parliament an expanded budget of Sh3
trillion that is Sh400 billion more than last year’s Sh2.62 trillion
despite concerns that the rising budget deficit is driving public debt
to an unsustainable levels.
Excise (or sin) tax has
traditionally hit consumers of alcoholic beverages and cigarette
smokers, but the government has recently made bold steps to charge it on
other products such as soft drinks, cosmetics, juice and bottled water.
But
the effort suffered a major setback when the High Court quashed the
gazette notice that introduced excise tax on a wider range of consumer
goods – a decision that the government has challenged in the Court of
Appeal.
Proposed changes to VAT law are, however,
expected to hit consumers hardest because the Tax Amendment Bill has
reclassified a raft of basic commodities from zero rating for VAT to
exempt status.
This effectively means that
manufacturers cannot recoup input VAT and will therefore pass on the
cost to consumers in the form of higher pricing.
The
list of goods set to cost more once the Tax Amendment Bill is passed
includes flour, bread, milk, farm pest control products and liquefied
petroleum gas.
The new tax measure could also affect
human and animal vaccines, raw materials for pharmaceutical
manufacturers and supplies to marine fisheries and fish processors.
Deloitte
tax leader for East Africa Fred Omondi said Mr Rotich could choose to
immediately bring on board some of the VAT changes that have been in the
pipeline, including the levy on petroleum products.
High-income
earners and small enterprises could also be waking up to a day of
increased tax pain in which Mr Rotich may formally introduce his
proposal to charge the top tax rate of 35 per cent on all income above
Sh9 million per year or Sh750,000 per month.
If Mr
Rotich’s proposals sail through, small businesses will be charged a
presumptive tax of 15 per cent of the single business permit fee issued
by a county government instead of the Sh5 million turnover tax currently
being charged on revenue below Sh5 million.
Mr Omondi said import duty is another area that the Treasury is likely to target for a tax increase.
“We
are likely to see an increase in import duty on some finished products
as part of the effort to promote local manufacturing, which is one of
the areas the government has identified as a driver of growth,” said Mr
Omondi.
Kenya is a net importer of goods and the
imposition of a new tax on imports or change in the tax rate would have
an immediate impact on the cost of imported goods and ultimately on
household budgets that are already feeling the weight of higher energy
and transport costs with the continued rise in the price of oil.
Tax
experts also want Mr Rotich to address the perennial budget deficit by
bringing more Kenyans into the tax net, and shifting emphasis from
direct to indirect taxes.
Mr Okello said that instead
of raising income tax rates, the Treasury ought to increase the VAT rate
to 18 per cent while reducing income tax.
Such a move, he says, would leave more money in people’s pockets and boost the economy through increased spending.
He,
however, acknowledges that in cutting the budgetary allocation to the
Kenya Revenue Authority (KRA) by Sh828 million, the National Assembly’s
Budget and Appropriations Committee may have negatively affected the tax
reform efforts.
No comments :
Post a Comment