New 2024 Finance Bill in Kenya, which introduces new taxes on various items and services, has faced significant criticism from citizens this week.
If enacted, the law will grant the Kenya Revenue Authority (KRA) extensive powers to enforce tax compliance, including the ability to access bank and mobile money accounts.
Proposed New Taxes and Levies
The Finance Bill 2024 suggests a range of new levies, such as a VAT on bread and a 5% increase in excise duty on financial transactions like bank payments and mobile money transfers.
Additional taxes include those on insurance services and a 20% tax on gross turnover for non-residents with online businesses in Kenya.
Erosion of Trust in Leadership
Many Kenyans feel betrayed by President William Ruto, who had promised to address economic issues and reduce over-taxation during his campaign.
Critics point to instances of extravagance, such as chartering a $1.5 million jet for a US visit, while calling for austerity amidst rising debt repayments.
Revenue Collection Goals
According to the National Treasury Budget Policy Statement, Kenya aims to boost revenue collection to over 20% of GDP in the financial year starting July.
The target is to collect $22.2 billion (KES2.95 trillion) in taxes, up from $19.7 billion (KES2.62 trillion) the previous year.
Opposition from Industry Associations
Numerous industry associations and lobby groups have written to the National Treasury and Parliament opposing sections of the new law that would increase the prices of goods and services.
The Kenya Bankers Association (KBA) was the first to express disappointment, highlighting that increased excise duty on bank transactions and VAT on services would raise banking costs by 40%, undermining financial inclusion.
Concerns from the Kenya Bankers Association
The KBA stated that while VAT traditionally applies to goods and services, bank charges are not considered VATable as they are seen as cost recovery, not a direct payment for services.
The proposed VAT on foreign exchange transactions is also seen as a threat to economic growth by taxing export proceeds and hindering the competitiveness of Kenyan products.
Government’s Justification
Ruto’s coalition, with a majority in both houses, argues that the new measures are necessary to help the country repay its $75.3 billion debt.
With a debt-to-GDP ratio of 70%, the second highest in East Africa, the government maintains that increasing taxes is essential.
Impact on Inflation and Essential Goods
Kenyans are already grappling with rising inflation and interest rates.
The Finance Bill also proposes a 25% excise duty on vegetable oils, which industry players argue will significantly increase the prices of cooking oil, soap, margarine, and other essential items.
This could lead to an 80% rise in cooking oil prices, making it unaffordable for many.
Effects on Daily Life
Since August 2022, cooking oil prices have more than tripled due to global factors.
The new levy would increase the price of 400g bread to $0.6 (KES80) from $0.53 (KES70) and the price of a long bar of soap to $2.07 (KES270) from $1.36 (KES180). Margarine prices could nearly double.
Tax Impact on Insurance and Other Sectors
Experts warn that the new law will adversely affect sectors with low penetration, such as insurance.
The Association of Kenyan Insurers (AKI) has opposed a 2.5% motor circulation tax, stating it will push motorists towards cheaper third-party insurance.
Other associations, including the Kenya Manufacturers Association and Kenya Association of Air Operators, have also raised concerns.
Privacy and Legal Challenges
The proposed law granting KRA access to bank and mobile money accounts without a warrant has raised privacy concerns, conflicting with the Data Protection Act of 2019.
Despite a petition filed in Nairobi court to block the law, Ruto’s legislative majority is expected to ensure its passage.
These proposed changes in Kenya’s tax policy have sparked widespread debate and concern among citizens and industry groups, highlighting the tension between revenue collection and economic stability.
TDPel Media
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