Kenyans should brace for much tougher times as President William Ruto's government plans to rely more on internal funding to cut debt dependency.
Yesterday, Ruto made clear his intentions to raise the percentage of tax as the country's revenue to 20-22 per cent, pouring cold water on ongoing public condemnation of Finance Bill, 2024 released last week.
Some of the Finance Bill proposals, if passed in their current form, will make life even more oppressive for Kenyans struggling at the bottom of the economic pyramid. He promised them better living standards while he was campaigning. He wooed the hustlers and won them over.
"I am not going to preside over a bankrupt country. I am not going to preside over a country that is in debt distress. I intend to raise the country's average tax rate from 14 per cent to 16 per cent in 2024 and up to 22 per cent by 2027,'' Ruto said.
He asked Kenyans to stop complaining about taxes, saying that data shows the country is way behind its peers in the region when it comes to tax as a component of national revenue.
"Our taxes are way below those of our peers in the region, are at 22 to 25 per cent. Countries like France are at 45 per cent."
This is perhaps why the Kenya Kwanza government plans to raid farmers, vehicle owners and mobile transactions to raise 74 percent of budgetary needs for the financial year starting July 1.
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.
His government's ambitious revenue mobilisation is well captured in the Finance Bill, 2024, which has caused a hue and cry. A motor tax of 2.5 per cent of total value is at the centre of the uproar.
Others are a five per cent withholding tax on agricultural produce delivered through cooperatives, raising excise duty on mobile and banking transactions and introduction of Value Added Tax (VAT) on bread – the staff of life.
For instance, the proposed law hits farmers, especially smallholder farmers in the tea, coffee, pyrethrum, milk among other farm yields collected and sold by cooperatives. They will now attract a five per cent withholding tax.
While the government hopes to widen the tax net and boost revenue, tax analysts at Bowmans, KPMG and Deloitte warn the initiative could push farmers towards informal channels, selling directly to consumers to avoid the tax.
"This could shrink the formal agricultural sector, ultimately harming tax revenue in the long run,'' tax leaders at Bowmans wrote in their analysis of the Bill.
They said the potential impact on consumers is also unclear. While informal sales might initially bring down prices, experts warn of long-term consequences.
"Finding a balance between widening the tax net and supporting the crucial agricultural sector will be key to ensuring the success of any new tax measures” a Bowmans’ statement said.
The government is also planning to introduce a VAT of 16 per cent on bread, a move that could potentially push up prices of the popular breakfast food and sandwiches.
This particular proposal has also been met with a public uproar, forcing President Ruto to intervene, asking the National Treasury to rethink the idea.
That effort has been termed too little too late by various entities, who say his government is acting with too much haste on weighty tax matters.
“He is too late. The train left the station a long time ago. His intervention to have proposed VAT on a common food like bread repealed is a clear sign of double-speak and the last dying kicks to appease hustlers who voted him in 2022," James Masika, a political science scholar at Edinburgh University told the Star.
Shopkeeper Jane Kiama in Sigona, Kiambu county said, "We pay huge taxes on our income, food, houses, and clothing, among others.
“Yet doctors have been on strike and free primary and secondary school education is just on the paper. Where do these monies go? What motivates me as a taxpayer?'' she asked.
According to the proposed law, excise duty on bank transactions has been reverted to 20 per cent from 15 per cent while those on mobile phone transactions like M-Pesa which had been revised to 12 per cent from 15 per cent have been pushed to 20 per cent.
This means telcos are likely to raise transfer and withdrawal charges to cover the additional tax burden.
Today, transferring Sh101-Sh500 on M-Pesa costs Sh7 while users are charged Sh29 as withdrawal charges.
A five per cent increase means that transfer and withdrawal charges will rise to at least Sh7.35 and Sh30.4.5 respectively.
Those intending to transfer a higher limit of Sh250,000 will now pay Sh113.40, up from the current Sh108. Those withdrawing this upper limit will now incur Sh324.50, up from the current Sh309.
Excise duty on bank transactions, which had been relaxed to 15 per cent in 2022, has been raised to 20 per cent, which might trigger costly bank charges.
On Wednesday, NCBA Group Bank CEO and chairman of Kenya Bankers Association (KBA) John Gachora strongly criticised the proposed taxes in the Financial Bill.
He targeted the administration's plan to impose new transaction charges, labelling them as “unnecessary taxation” and condemning the “introduction of both Tobin Tax and Robinhood Tax by removing VAT exemptions for banking transactions.”
"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.
Analysts at Bowmans say the proposal contradicts the government's effort to make Kenya a digital superhighway through an effective and less costly financial system.
Furthermore, owning a car in Kenya will mean paying 2.5 per cent of its value to the government from your income every year if the proposed tax law is passed.
The deduction is set at a minimum of Sh5,000 and a maximum of Sh100,000 whichever is higher.
The motor vehicle tax will be paid on each vehicle at the time of issuing insurance cover if the Bill is passed into law in the current format.
According to the Bill, the value of a motor vehicle shall be determined based on the make, model, engine capacity in cubic centimeters, and year of manufacture.
"An insurer who fails to collect and remit motor vehicle tax shall be liable to pay a penalty equivalent to 50 per cent of the uncollected tax and the actual amount of the uncollected tax."
Matatu Owners Association (MOA) chairman Albert Karakacha has called the proposed motor vehicle tax “insane”, saying his members are already suffocating under the current 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.
Most vehicle owners have opposed the proposal, asking members of Parliament to be honourable enough to quash it.
"Who came up with the idea? Has the government built or created a supportive environment to sustain e-mobility? Those proposals are wicked and illogical,'' Kelvin Mbeche, a taxi operator in Westlands told the Star.
"What is the proposed tax curing?” Westlands business operator James Mugo asked. “Is it a wealth tax, carbon tax, or simply a user tax?'' he queried.
Even so, Ruto's footsoldiers in the Parliament are adamant that the new tax is in the best interests of the country. All legislators are extremely well paid and enjoy generous perks.
The Molo MP and the chairman of the Finance and National Planning Committee in Parliament says the levy is “a hybrid of income and wealth tax” set to encourage investments in the public transport sector.
“Every time investors want to put money in our public transport system through public-private partnerships, the feasibility studies show that we like to drive our cars so much that we are not able to attract foreign investment," he said.
“If you don’t want to pay the motor vehicle circulation tax, then don’t use the car, just as you don’t use the Nairobi Expressway if you don’t want to pay for it."
Minority leader in the National Parliament Opiyo Wandayi has called out the government, terming its pronouncements on the Finance Bill and high tax regime as “careless and regrettable”.
Daniel Muthoga, a Political Science lecturer at a local university said the tax regime is overly harsh.
He said the proposed law has a few positive aspects, such as VAT exemption on locally manufactured passenger motor vehicles, which would encourage local assembling
Political commentator Miguna Miguna has joined the foray to condemn Ruto's tax ambitions, asking him to show some respect to the suffering Kenyans who gave him an opportunity to lead.
"Kenyans are overtaxed, repressed, exploited and abused. The high taxes paid are stolen, misused, diverted and wasted by few politicians. You have no justification to impose a 20-22 per cent tax on Kenyan,'' he wrote on X, formally Twitter.