The Finance Bill, 2023 is set for parliament in two weeks' time and the legislation that has elicited sharp reaction across the political divide will for the first time put President William Ruto's economic plan to the test.
On one hand, the government states that the Finance Bill 2023 presents a rational plan to raise the massive Sh3.6 trillion spending plan for the Kenya Kwanza administration's first year in office, amid high public debt and constrained revenues.
On the other hand, there have been concerns that the raft of new taxes and levies proposed by the National Treasury will erode the incomes of Kenyans and small businesses already suffering through high inflation.
One of the taxes that has caused much uproar on social media is the advance tax. The tax was introduced in January 1996 as a payment levied on all commercial vehicles.
"Notwithstanding any other provision of this Act, a tax to be known as advance tax shall be payable commencing on the 1st of January 1996 in respect of every commercial vehicle at the rates specified in the Third Schedule," explains the Income Tax Act, 1975 in part.
"The rate of advance tax under section 12A shall be— for vans, pick-ups, trucks, prime movers, trailers and lorries: Sh1,500 per ton of load capacity per year or Sh2,400 per year, whichever is the higher," explains the Income Tax Act in part.
The advance tax is exempted to tractors or trailers used for agricultural purposes.
Saloons, station-wagons, mini-buses, buses and coaches that serve commercial purposes on the other hand are currently eligible to pay Sh60 per passenger capacity per month or Sh2,400 per year, whichever is higher in advance tax.
The Finance Bill, 2023 proposes to double this levy from January 2024 and if approved, vans, pick-ups, trucks, prime movers, trailers and lorries will pay Sh3,000 per one tonne of load capacity per year or Sh5,0000 per year, whichever is higher.
The proposed amendment in the Finance Bill, 2023 also leaves in place the exemption of advance tax for tractors or trailers used for agricultural purposes.
Saloons, station-wagons, mini-buses, buses and coaches used for commercial purposes will on the other hand pay Sh100 per passenger capacity per month or Sh5,000 per year, whichever is higher.
According to tax advisory firm Deloitte East Africa, the advance tax is likely to negatively affect the local assembly of motor vehicles by discouraging investment into the transport sector.
"Although the change could have been driven by the perceived growth in the transport sector and the government’s intention to increase revenue collection from the sector, the increment may be counter-productive with regards to the move to incentivise the local assembling of the motor vehicles, local manufacturing of original motor vehicle parts and the underlying effect of creation of jobs to the citizenry," said Deloitte in its assessment of the tax.