The National Treasury has chosen to walk away from tax measures that directly impact Kenyans and is instead taking away reliefs that could eventually lead to more expensive consumer goods.
A litany of goods that are currently zero-rated have been proposed to be exempted from value-added tax (VAT), meaning manufacturers and retailers will have no chance of recouping previously claimable VAT.
The government has for the last few days, been on a campaign that, for the first time, it is introducing a finance bill that introduces no new taxes and is instead keen on tightening tax compliance and sealing revenue leaks.
As experts and Kenyans begin to analyse the tax bill, a pattern is emerging—one that walks away from last year’s controversies.
“What they have attempted this year is to move away from items that are very public-facing and focus more on businesses,” said Mentoria Chief Economist Ken Gichinga.
Part of the National Treasury’s efforts are on the Value Added Tax Act. Several goods and inputs currently zero-rated could soon become VAT-exempt.
Zero-rated items allow businesses to claim VAT refunds on their inputs and raw materials. This helps reduce production costs for businesses.
Shifting to VAT-exempt would mean that businesses have no chance to recover such tax expenditure, forcing them to transfer the same to the end consumers.
Some of those to be tax-exempted include raw materials used in the production of medicines in the country, transport services for sugarcane from farm to factory, locally assembled mobile phones, electric bicycles, solar and lithium-ion batteries, as well as animal feed inputs.
“If this document was meant to get us closer to job creation and economic growth, I don’t think it’s quite achieved that because it’s going to add the cost of goods, add the cost of doing business, making the economy slow down,” added Gichinja.
The bill also proposes longer timelines for tax refunds. The Kenya Revenue Authority would have up to 120 days, up from 90, to verify refund claims. The tax refund audit period would be extended from four months to six months.
“We now have people who claim tax refunds because they run bakeries. And we are paying a lot of money to many bakeries, but you know what they are doing? They have more accountants in those bakeries than people who bake any bread. This, ladies and gentlemen, we must have a candid conversation and stop it,” President William Ruto said.
But tax experts warn the extended timelines for legitimate tax refunds could worsen existing cash flow challenges for businesses.
The bill also proposes the scrapping of a section of the Tax Procedures Act that bars KRA from demanding integration of the systems of a business with its own. If the bill passes as is, the taxman would have access to personal data collected by businesses from their customers.
“We hope the feedback that will be given by Kenyans will easily be adopted, because last year some of the proposals Kenyans were giving, they were told that those were non-negotiable,” Gichinja noted.
Other proposed changes include exempting retirees’ gratuity payments from taxation.
“This reform is a recognition of the service and sacrifice of our workers and a step towards ensuring that retirement is met with dignity, not stress,” said Ruto.
If enacted by Parliament, private sector employees could also see their tax-free per diems increase from two thousand shillings to ten thousand shillings.
