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Government and Policy

How Kenyans Will Be Choked to Death if the New Taxes are Implemented

BY Soko Directory Team · June 19, 2018 10:06 am

The 2018/2019 budget read by treasury cabinet secretary recently is an increment of 10.83 percent from the last year budget. The Sh3.074 trillion is inclined towards the four sectors of the jubilee regime agenda (The Big Four).

The revenue expected to be collected will fall short of fully financing the budget. The proposed tax amendments together with tax laws (Amendment) Bill, 2018 under Gazette No.34 seeks to increase revenue collection so as to reduce the budget deficit.

The amendments likely to become law in the near future will, however, increase the tax burden mainly on consumers.  The only way to ease the tax burden is to increase the number of taxpayers by bringing new taxpayers on board.

Here is how the tax amendments will impact consumers and businesses.

Value Added Tax (VAT) Exempt.

In the tax laws (Amendment) Bill, 2018 several supplies will move from being Zero rated to being exempt for VAT.  Supplies such as; liquefied petroleum gas (LPG), bottled water, fish processors, raw materials used in hospitals clothing & pharmaceutical manufacturing, milk, maize flour, emergency relief taxable goods will shift from zero rating to VAT exempt.

The shift is likely to see the prices of these supplies increase. In VAT exempt the supplier is ineligible for any input VAT claim for tax credit purposes. Basically, the supplier is likely to factor the unclaimable VAT in the price of the supply to the final consumer.

The final consumer will bore the final tax burden by paying more for goods and services now in the VAT exempt category. However, the government burden of VAT refunds will reduce.

Excise duty

The excise duty fees charged on money transfer services by cellular service providers increased from 10 percent to 12 percent. The convenience and popularity of mobile money transactions are likely not to affect the amount of money transferred. This means that Kenyans will again bore the additional 2 percent further increasing the cost of living.  

The excise duty of kerosene will go up by Sh3.1 per liter, a pinch most likely to be felt by low-income households.

Petroleum products in the near future will start attracting 16 percent VAT. This will increase transport costs which will end up increasing the prices of other commodities as transporters pass these additional costs to the final consumer.

Presumptive tax

A presumptive tax of 15 percent of the single business permit given by county governments will be introduced. The tax will replace the turnover tax which is at 3 percent. The businesses that qualify for this tax are those that total revenue does exceed 5 million per annum.

The presumptive tax will see even small kiosks pay tax.  Unlike the turnover tax which is self-declared as many businesses do not have ETR machines, the presumptive tax will be paid when applying for or during renewal business renewal.

The presumptive tax will see the cost of starting up or doing business go up. This is likely to discourage many business start-ups as well as closure of many micros, small & medium enterprises (MSMEs). This is dangerous due to the important role & contribution MSMEs play in Kenya’s economy.

Income tax

The amendments seek to increase the tax on individuals whose income is Sh9 million per annum or 750,000 per month from 30 percent to 35 percent. The amendment only targets high-income earners.

Further, it seeks to expand the definition of winnings so as to include winners arising from betting, lotteries, gaming and prize competitions.

Thereafter, increase the 5 percent withholding tax to residents to 20 percent withholding tax deducted at source for both residents and non-residents.

(This story has been written by Ruthline Wairimu, an Economist, Tax Expert and an Accountant)

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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