As the debate on the proposed tax measures to fund the budget for the financial year starting July 1 climaxes, each sector is trying its best to negotiate for leniency, leaving Parliament in limbo.
On Thursday, the chairperson of the Parliamentary Finance Committee Kuria Kimani spoke about the frustration but called for a sober engagement to achieve balanced results.
"The committee has received numerous opposing views on some of the proposals. It has been a rich debate. However, we urgently need to find a win-win [situation] to accommodate the views presented and the need to fund the country's budget for the year starting July 1,'' he said.
The debate is so intense that the ruling Kenya Kwanza government was forced to state its position on some clauses, way before the Financial Bill, 2024 was available for public engagement.
For instance, President William Ruto was forced to comment on the proposal seeking to push bread into the value added tax bracket.
Mid-last month, sources close to the presidency revealed to the Star that Ruto had directed the National Treasury to expunge the clause that could have seen the price of a standard bread weighing 400 grammes rise by Sh10.
The exchequer had earlier maintained its stance on the tax, arguing that zero-rating bread and milk had not effectively benefited low-income households or the middle class.
The Bill, published on May 9, seeks to amend laws relating to various taxes and duties including the Income Tax Act, VAT Act, Excise Duty Act, Tax Procedures Act, Miscellaneous Fees and Levies Act and Affordable Housing Act, among others.
Various lobby groups have presented their views to the Kimani Kuria-led committee, with manufacturers, bankers, motorists and consumer lobbies, among others, opposing the proposed additional taxes.
"The Finance Bill, 2024 presents some progressive proposals aimed at promoting manufacturing growth, however, several others shall hinder this objective, and ultimately impact Mwananchi," the Kenya Association of Manufacturers CEO Antony Mwangi says.
The lobby is, for instance, opposed to the proposed Eco Levy targeting manufacturers and importers of select products to set up waste management infrastructure, finance Kenya’s sustainable waste management programme and set up electronics waste collection centres across 47 counties.
According to KAM, the new levy will not only duplicate the existing levy mandated under Extended Producer Responsibility schemes, but it will also reverse initiatives to create a circular economy to manage its waste and become a regional recycling hub.
It says that the levy will be detrimental to ordinary consumers, as it will increase prices for all plastic packaging materials, batteries and hygiene products.
For instance, a Sh150 levy per kilogramme of plastic packaging will increase the cost of a 400-gramme loaf of bread by Sh9 from Sh65 to Sh74; and increase a litre of cooking oil by Sh16.81 from Sh300 to Sh316.81
It is also likely to push up the cost of a kilogramme of power detergent by Sh30 from Sh200 to Sh230 notwithstanding other duties proposed by the Bill on the same products.
The government has proposed to remove the provision allowing manufacturers to offset the costs of their raw materials subject to excise to encourage local value addition and drive cost competitiveness.
The lobby is opposed to the introduction of a lower VAT rate for manufactured goods instead of an exemption to reduce the cost of finished goods.
Additionally, the government has proposed a 25 per cent excise duty on crude palm oil, 25 per cent excise duty on finished cooking oil and 10 per cent excise duty on plastic packaging materials
“A stable and predictable tax policy environment is critical for driving investments. We appeal to the government to implement the National Tax Policy, which aims to assure both local and foreign investors have certainty and consistency in tax policies."
The lobby says that the proposed tax measures will pour cold water on its ambition to drive the sector’s contribution to Gross Domestic Product to 20 per cent by 2030.
An analysis of Kenya’s manufacturing sector shows that it has been shrinking, from contributing 10.9 per cent to GDP in 2013 to 7.6 cent in 2023.
The Kenya Bankers Association, on the other hand, is opposed to the raising of excise duty on bank transactions to 20 per cent from 15 per cent.
These services, including money transfers, credit and debit card issuance, cheque handling and foreign exchange transactions, are essential for individuals and businesses.
The banker's lobby is calling for a reassessment of tax measures on financial services to prevent its adverse effects on economic growth and competitiveness.
It is also calling for consistency in tax policy and for the government to address the cost of compliance.
“By adopting these recommendations, the government can mitigate unintended consequences of imbalanced tax policy and regulation, promoting sustainable economic development and safeguarding the welfare of the Kenyan public,” Raimond Molenje, the acting Kenya Bankers Association CEO, told the Star.
NCBA Group Bank CEO and chairperson of KBA John Gachora has specifically targeted the administration's plan to impose new transaction charges, labelling them as "unnecessary taxation".
"The Bill could devastate the banking industry, potentially leading many to revert to 'mattress banking'. It will make basic banking services more expensive, increase the cost of credit and push people towards the black market," Gachora said.
There has also been a public outcry against the proposal that seeks car owners in Kenya to pay 2.5 per cent of its value to the government every year.
Matatu Owners Association chairman Albert Karakacha termed the proposed motor vehicle tax as "insane", saying that his members are already suffocating under the current tough tax regime.
"We are already paying a premium for fuel in the name of taxes. The economy is tough to generate enough revenue to repay our loans. We strongly oppose insane proposals in that bill,'' Karakacha said.
Consumer Grassroots Association, an independent non-political and non-profit organisation committed to grassroots consumer protection has added its voice to the debate, calling for a total scrap of the Bill.
Speaking during a debate on Citizen TV, executive director Alice Kemunto called on Parliament to front the interests of electorate.
"We are aware that some rogue MPs added some illogical clauses in the bill for their selfish gains. Shame on you. Kindly do not add more pain to consumers," she said.
On Wednesday, the Kenya National Federation of Sugarcane Farmers expressed concern over the Finance Bill, 2024, which proposes a 16 per cent VAT on such transportation.
In a letter addressed to the chairperson of National Assembly Committee of Finance and the Principal Secretary Ministry of Agriculture, they termed the proposed tax as punitive and discriminatory.
"We as a federation representing sugarcane farmers strongly oppose this punitive and discriminatory proposed tax amendment and urge that it be scrapped from the proposed Finance Bill 2023," the letter states.
The farmers said that currently the cost of production is substantially high and the industry is bleeding due to a myriad of challenges.
As the push and pull on the proposed taxes continues, Parliament is running against time to ensure that the National Treasury presents the budget and the President assents to the Bill before the close of the financial year.
The National Treasury intends to boost revenue collection to more than 20 per cent of GDP in the next fiscal year to about Sh2.95 trillion, up from Sh2.6 trillion set for the current financial year.
On Wednesday, the Kenya Revenue Authority deputy Commissioner Maurice Oray said that the taxman is targeting at least Sh500 billion from the proposed tax measures.
He however failed to give the actual figure raised from the implementation of the current Finance Act that validated VAT on petroleum products among other things.
Economist Shem Mutonji warns that KRA cannot overtax fewer people and expect to achieve its revenue targets.
"You cannot defy the Laffer Curve theory and survive. Tax measures must be of mutual benefit between the public and the state. This is just the tip of the iceberg, winter is coming," he said.
In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue.
It assumes that no tax revenue is raised at the extreme tax rates of zero per cent and 100 per cent, meaning that there is a tax rate between zero per cent and 100 per cent that maximises government tax revenue.
Proponents of the Bill, however, argue that the tax pain will be for short moment before taxpayers start reaping dividends.
President Ruto has defended the government’s plan to levy additional taxes on Kenyans, stating that it is part of a broader strategy to enhance the country’s revenue and reduce reliance on borrowing.
“The remedy to solve the debt burden is to pay taxes and become independent in developing the nation with our own money and even get to a point where instead of borrowing we will be lending to other nations. That is the trajectory we want to go,’ he said.
The head of state says he intends to raise the country’s average tax rate from the current 14 per cent to 16 per cent by the end of this year and aims for a rate of between 20 and 22 per cent by the end of his term in office.
While acknowledging the economic burden Kenyans will have to bear to achieve this target, Ruto believes that the long-term benefits will justify the increased taxes.
His party lieutenants have even dared manufacturers complaining of heavy taxation to relocate to either Uganda, Tanzania or Rwanda and other neighbouring East African Community countries and export their goods to Kenya duty-free.