If MPs vote in favour of Uhuru’s new tax proposals, the Government will be handed the carte blanche to raid Kenyans’ pockets further to whet growing appetite for cash.
The cost of living is likely to go up despite President Uhuru Kenyatta’s decision to reduce the punitive fuel tax by half.
Sending money via mobile money transfer service will be more expensive should MPs pass the sweeping tax proposals by the President. It will also be painful withdrawing cash from an ATM, transferring money from your bank account into your mobile money wallet or just depositing a banker’s cheque for your child’s school fees after the Government proposed doubling taxes on all bank as well as mobile money transactions.
Time spent on Facebook, Whatsapp or Twitter will be more precious, as tax changes will see the cost of Internet bundles go up. Cries will also be heard in rural areas as Uhuru increases the tax on kerosene, making cooking and lighting for millions of poor rural folk an expensive affair.
In a Memorandum to the Speaker of the National Assembly in which he refused to assent to Finance Bill, 2018, the President, who had earlier proposed a 50 per cent reduction on VAT on petroleum products, shockingly proposed punitive taxes on such critical products as mobile money transfer, cash transfers, workers’ salaries and kerosene to raise Sh67.5 billion.
The tax proposals spell more difficult times for Kenyans already faced by a sluggish economy in which businesses are shedding jobs and workers’ wages are stagnant. “The amendments I have proposed reduce the financing gap but do not eliminate the gap,” said Uhuru in the memorandum. He also asked Parliament to reduce Government expenditure by Sh55 billion. David Ndii, a Jubilee government critic, laughed off the latest fiscal policies, terming them desperate measures.
“They are cutting expenditure and at the same time trying to raise more taxes. They are withdrawing money from the economy, how will the economy grow?” he wondered. Ndii said the Government was desperate, having dug itself into a financial hole by recklessly borrowing and spending. “When you are in a financial crisis, you will see all sorts of desperate measures,” said Dr Ndii. With formal employees already grappling with a hefty income tax in which the State slices a third of their basic salary, the Government plans to reduce further their take-home income by requiring workers to contribute 1.5 per cent of their earnings to the National Housing Development Fund up from an earlier proposal of 0.5 per cent. Official figures show there are only 2.5 million people in formal employment out of about 18 million people eligible for employment. Majority of them, over 60 per cent, earn between Sh20,000 and Sh49,999, according to national Statistic body.
Employers will be required to match their employees’ contributions by also contributing 1.5 per cent to the new kitty as the President moves to realise his dream of constructing 500,000 low-cost houses by 2022. The Institute of Certified Public Accountants of Kenya chairman Julius Mwatu said while the housing fund was well-intended owing to the country’s housing crisis, affordability might be a hindrance. “The only problem is that it is a direct tax that will go straight at the consumer. If I earn Sh100,000 I will have to pay Sh1,500. But can I afford it?” He said some people in formal employment might be earning less than those in the jua kali sector, and yet the latter are not expected to contribute the 1.5 per cent levy.
“The Government should look at other areas to widen the tax net because there are limits to how much tax one can pay… and that is why MPs interacting with the people on the ground are uneasy about the taxes,” said Mwatu. But it is mobile money transactions-a financial service that has become popular with the majority of Kenyans-that the Government has raided with zeal. Treasury plans to shore up its coffers by going after the close to 43 million users of mobile money transfer services by taxing every transaction with a hefty 15 per cent excise duty up from 10 per cent.
In what is fast turning into the Government’s cash-cow, National Treasury Cabinet Secretary Henry Rotich had in his budget statement proposed to increase the tax to 12 per cent before Uhuru pushed it up. Policy analyst Robert Shaw noted the President simply shifted the tax burden from petroleum products to money transfers. “What they have done is take out the other eight per cent and spread it on money transactions because people are so dependent on the M-Pesa. It will certainly increase the cost of living because we all use M-Pesa more than cash,” said Shaw.
[BUSINESS] Lobbying intensifies ahead of vote on VAT: Subtle but concerted behind-the-scenes lobbying intensified to have at least 117 MPs support President Uhuru Kenyatta’s punitive tax proposals. https://t.co/kFQxN7V8vw
— Breaking News (@News_Kenya) September 20, 2018