Uhuru cites Sh67.5 billion funding gap

President Uhuru Kenyatta shares a light moment with Deputy President William Ruto and National Assembly Majority Leader Hon. Aden Duale when he chaired a Jubilee Parliamentary Group meeting at State House, Nairobi, which agreed to support President Uhuru Kenyatta’s proposal to reduce VAT on petroleum products to 8 per cent. [Photo: Standard]

President Uhuru Kenyatta has cited a Sh67.5 billion funding gap for his decision to reject the Finance Bill, 2018, passed by the National Assembly.

Uhuru said the revenue shortfall would occasion a major paralysis to the Government’s operations, and thus returned most of the tax measures that were rejected by the MPs.

He recommended a budget cut of Sh55 billion after he reduced the 16 per cent Value Added Tax on petroleum products to eight per cent.

The Government had planned to collect Sh35 billion by June next year from the fuel levy.

The President’s memorandum was communicated by Speaker Justin Muturi to the charged MPs, who shouted “zero!” in reference to their initial decision to suspend the tax for another two years.

Some of the MPs yesterday vowed to defy Uhuru and Opposition leader Raila Odinga when they vote tomorrow on the proposals.

Policy measures

“In the course of approval of the Finance Bill, 2018, the National Assembly removed other policy measures that had revenue impact. In sum, the Finance Bill, 2018, as currently approved by Parliament, has created a funding gap of Sh48.6 billion,” Uhuru said.

The figure is in addition to Sh18.9 billion in the Appropriation Act, 2018, bringing the total revenue deficit to Sh67.5 billion.

Uhuru cited benefits in charging VAT on fuel, stating that it would enable suppliers to claim input VAT, which will reduce their costs, thus making supplies cheaper.

“The benefit is expected to tickle down to the final consumers of such supplies. In addition, under the current VAT Act, most of the VAT associated with petroleum products is not claimable due to the exempt status of the products,” he explained.

He said the tax would also help the Government to widen its tax base and raise more revenue to finance its capital projects as well as deliver essential services.

Uhuru further wants telephone and internet data services to be charged excise duty at a rate of 15 per cent of their exercisable duty. This is on top of 12 per cent tax on mobile money transfers, up from 10 per cent.

There will also be a 20 per cent excise duty on fees charged for money transfers by banks, money transfer agencies and other financial service providers.

An excise duty on other fees by financial institutions has been pegged at 20 per cent.

Uhuru has also returned the National Housing Development Fund, where employers and their employees will each contribute 1.5 per cent of the employee’s basic salary.

The sum contribution of both the employer and the employee shall, however, not exceed Sh5,000.

Uhuru explained that the fund would be used to finance the purchase of a house under affordable scheme for employees who qualify, while employees who would not qualify after 15 years of contribution would have the money converted to a pension scheme.

Betting tax

Curiously, the President reduced tax on betting and lottery from 35 per cent to 15 per cent.

The Treasury had proposed the reduction for “equity and fairness” but MPs rejected it.

Fuel importers will further pay anti-adulteration levy at Sh18 per litre of kerosene should the MPs pass the proposals by Uhuru tomorrow.

Mr Muturi told the MPs that they were free to propose further amendments to the President’s recommendations so long they did not fully alter the proposals.

“So long as such amendments have the effect of fully accommodating the President’s reservations, the voting threshold for the passage of such amendment or, indeed the proposals made by the President, is a simple majority as contemplated by Article 122 (1) of the Constitution,” said Muturi.

“Any other proposed amendment that does not fully accommodate the reservations, or indeed a total override of the President’s reservation, including his proposed text, would attract the two-third requirement,” he explained.

He said the determination of whether a proposed amendment to the reservation would have the effect of “fully accommodating” those reservations shall be made by the Speaker on a case-by-case basis.

“The absence of at least two-thirds majority at the time of putting the question does not in any way imply that the House is improperly constituted,” he declared.