Plan for new taxes every three years

The National Treasury is working on ways of making tax regime stable so that the Finance Bill can be considered once every three years. FILE PHOTO | NMG 

By CONSTANT MUNDA

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Summary

• The National Treasury is working on ways of making tax regime stable so that the Finance Bill can be considered once every three years.
• This will offer relief to firms like East African Breweries Ltd (EABL) that have in recent years asked the Treasury to adopt a regular, predictable tax increases rather than big moves every year.
• The plan, if implemented, will be welcomed by the business community who have for years been agitating for a predictable and stable taxation regime to help firms plan for long-term investment strategies.

New taxes on goods and services will be introduced every three years instead of annually if proposals by the Treasury are adopted.

The National Treasury has informed the Finance Committee of the National Assembly of plans to review the period for publishing the Finance Bill—which contain proposals of the government for levy of new taxes or modification of the existing tax structures.

This will offer relief to firms like East African Breweries Ltd (EABL) that have in recent years asked the Treasury to adopt a regular, predictable tax increases rather than big moves every year.

“The National Treasury was working on ways of making tax regime stable so that the Finance Bill can be considered once every three years,” said a notice by the committee.

The plan, if implemented, will be welcomed by the business community who have for years been agitating for a predictable and stable taxation regime to help firms plan for long-term investment strategies.

East African Breweries, the giant brewer which is 50.03 per cent controlled by UK’s Diageo, has been one of the vocal firms unhappy with rise in taxation almost on a yearly basis.

Beer and spirits fall within the “sin tax” basket which have been the soft targets as the Treasury aims to grow taxes to meet rising expenditure and cut borrowing.

“A predictable policy and regulation environment will help firms plan five, 10 years out,” EABL chairman Charles Muchene said last year.

“This is not necessarily about fixing everything where it is, but creating an environment where changes in future are going to be predictable and people can plan around those changes.”

Most of the taxation measures introduced in the 2018 Finance Bill drew outrage from businesses and consumers, prompting MPs to vote them out last Thursday.

MPs voted to delay a proposed 16 per cent tax on petroleum products for two more years, citing the high cost of living - a move that will be a blow to government efforts to raise revenues through higher taxes.

The also rejected a “Robin Hood” tax of 0.05 per cent on bank transfers of over Sh500,000 ($5,000) during Thursday’s session and an employee contribution scheme towards the national housing development fund.

READ: Eyes on Uhuru as MPs reject Treasury’s taxes

The rejected tax increases were designed to fund a range of government development goals. including universal healthcare and affordable housing.

The Kenya Bankers Association, for example, decided to seek legal redress in unprecedented move on July 2 after the Treasury slapped a 0.05 per cent excise duty on bank transactions above Sh500,000.

The High Court suspended the implementation of the Robin Hood tax, which had kicked in from July 1, pending the determination of the case in which the KBA had argued not enough information has been provided.

New taxes have helped grow total tax revenue to Sh1.26 trillion in the year ended last June, from Sh1.22 trillion from in 2016-17, Sh1.07 trillion in 2015-16 and Sh958.19 billion in 2014-15.

The collections in the last financial year, however, fell short of the Sh1.44 trillion target, marking the second successive year in which collections have missed the target.

“The CS noted there has been a revenue shortfall in the past two years and the discussions were ongoing with KRA to establish challenges hampering revenue collection,” the Finance committee said.