Brace yourself, the taxman wants you to fund Big Four

The government will slap new taxes on mobile money, bank to bank transfers and airfares to help fund the ambitious Big Four Agenda.

The State also plans to raid billions of shillings sitting under the Unclaimed Financial Assets Authority (UFAA) to kick off the one million homes programme before looking out for other financiers.

It is also looking at possibility of slapping taxes on idle land across the country, as was done in Saudi Arabia, to discourage speculation and underutilisation of land resources.

Key sectors

President Uhuru Kenyatta’s Big Four Agenda has mapped down his government’s priorities to four key sectors – manufacturing, food security, healthcare and housing – in a dream that will need billions of shillings to actualise.

With near flat growth in the economy, unmet revenue targets by KRA amid rising expenditure, the government has been forced to borrow heavily to meet its obligations.

And now, with the Big Four agenda, the Jubilee administration must find new ways of generating additional taxes.

The new tax measures, expected to be introduced in the next two months when the Treasury tables the 2019 budget, are part of a plan to find new avenues of taxing the rich more in an effort to redistribute wealth to the poor and marginalised, in what is known as Robin-Hood taxes.

“Priorities for 2018 financing options to bridge the (financing) gap include introducing Robin – Hood taxes on high value Real Time Gross Settlement (RTGS), mobile money transfers and airfares,” the plan reads in part.

The Robin-Hood tax should have collected Sh4 billion by December 2018. Governments introduce Robin-Hood taxes to achieve greater social equality, fund public services, protect the environment and support the poor.

To meet the Sh4 billion Robin-Hood target, the government must introduce the new taxes in the Finance Bill – an annual money law that shows how the government will tax its citizens -- in the new budget to be read in June.

Last year, the country had 4.3 million RTGS transactions in which Sh2.9 trillion was sent from one bank to another. On average, there were about 360,000 RTGS transactions every month last year. The monthly transactions according to data from the Central Bank of Kenya (CBK) stood at Sh242 billion per month.

The government is eyeing to tap into these huge transactions in what may put it in a new collision path with banks coming at a time when financial institutions are grappling with low returns following the capping of interest rates.

Cost of air transport is also likely to go up with new taxes on airfares to fund the legacy plan and may hurt the competitive advantage of Kenya Airways among regional carriers.

But it is the mobile money transactions that promise to generate the biggest income for the government. A new tax on mobile money transfer is set to make sending cash more expensive if operators decide to pass the cost to the consumer, as has always happened with previous tax measures.

Currently, Kenya has more than 37 million mobile payments accounts that make about 130 million transactions monthly. Last year, Kenyans were sending between Sh290 billion and Sh320 billion using their mobile phones every month. This amount can fund the construction of the Standard Gauge Railway (SGR) from Mombasa to Nairobi and buy most of the locomotives the country has acquired.

Last year, a total of 607 million mobile money transfer transactions valued at Sh1.763 trillion were carried out. In addition, there were 308.6 million mobile commerce transactions valued at Sh1.1 trillion. The value of person-to-person transfers amounted to Sh596.4 million.

Cash cows

The Big Four plan priorities for new financing will also include the gradual increment of budgetary allocation to health from seven per cent in 2017 to 10 per cent in 2022.

The plan will also see the government dedicate a percentage of the excise duty it collects as sin taxes – taxes on alcohol, tobacco, jewelry and betting -- to health.

For instance, it will dedicate a third of all excise taxes it receives from tobacco sales towards funding the healthcare programme. Last year, it collected about Sh12.2 billion from excise taxes on cigarettes, and this means at least Sh3.6 billion will be netted.

Alcohol is the biggest cash cow for excise taxes, earning the taxman in excess of Sh25 billion. The plan is to have 15 per cent of this amount funding health programs directly. This promises the Ministry of Health another Sh3.5billion.

Gamblers will also see 15 per cent of taxes they generate go towards healthcare. A similar percentage of excise taxes will be collected from the sales of jewelry, cosmetics and locally assembled cars.

To build the one million homes, the government plans to contribute 10 per cent of the budget required from its internal revenues. The remaining will be shared between private financiers who are expected to provide 60 per cent of the money required. The National Social Security Fund (NSSF) is expected to provide financing for the remaining 30 per cent. NSSF is expected to finance the Sh28.2 billion housing project in Mavoko that will put up 8,200 houses through its balance sheet and other sources.

It is not yet clear how much the one million homes programme will cost, but it is expected to run into trillions of shillings. Some of those already identified include 13,400 units to be built in Kibera estimated at Sh20.1 billion.

To set the housing plan in motion, the government says it will be supported by allocations from the Unclaimed Financial Assets Authority (UFAA), which is the custodian of all moneys that remain uncollected by companies and financial institutions.

Currently, the agency sits on more than Sh25 billion. UFAA is expected to finance the second housing project within Kibera of 7,000 units estimated to cost Sh10.4 billion.

Brokerages at the Nairobi Securities Exchange (NSE) had also forwarded 241.3 million shares of different listed firms worth Sh16.42 billion. The State is eyeing Sh4 billion from NSE in quarter two to jump-start the housing agenda.