MPs reject proposals for tax hike on goods

Past joint parliamentary session in Nairobi [David Njaaga, Standard]

MPs have yielded to public pressure and shot down many proposals by National Treasury that would have seen a further rise in the cost of living.

Proposals in the Finance Bill 2022 that were turned down by the MPs included value added tax on maize and wheat flour, which would have added the pressure of putting food on the table for many Kenyans.

The MPs cited impacts the higher taxes would have had on Kenyans, and also considered the August polls, where legislations that could anger Kenyans might turn the tide on their re-election chances.

In its report on the Bill, National Assembly’s Committee on Finance and Planning also turned down Treasury’s quest to increase taxes on betting and alcoholic beverages. The Mrs Gladys Wanga-chaired committee said higher taxes, which would be passed on to consumers, were likely to breed underground activities such as rising illicit brews and gaming fans placing bets with offshore companies.

Treasury had hoped to raise an additional Sh51.6 billion from the new tax measures contained in the Finance Bill.

“The committee noted that the amendment will increase the price of maize flour, cassava flour, wheat or muslin flour and maize flour containing cassava by more than 10 per cent in weight and recommends deletion of paragraph 28 (a) (ii),” reads the Committee’s report on the Finance Bill 2022, which is now set for debate in Parliament. The committee said it listened to Kenyans who made presentations over the public participation phase of the Bill.

“The increase of tax on basic commodities such as maize flour, cassava flour, among others was also opposed by most stakeholders because it will further increase the cost of living for the common mwananchi.”

“The proposal to increase excise duty on betting activities will encourage people to bet in offshore companies and thus not achieve the intended purpose. The government will also not be able to realise the expected revenue from the sector,” said the committee in the report.

In turning down excise duty increase on different alcoholic beverages, the committee said the rate for alcohol was reviewed in the Finance Act 2021 and that the sector should be given time to recover. “The proposal to increase excise duty on alcohol may encourage uptake of illicit alcohol. The government may not therefore achieve the intended purpose of the tax, which is to discourage drinking, and will therefore not realise the expected revenue,” said the committee.

The Bill had proposed increasing excise on beer by 10 per cent and spirits by 20 per cent.

The committee recommended deletion of a clause that would see firms that lose at the  Tax Appeals Tribunal pay 50 per cent of the amount in dispute before appealing in High Court. “The requirement will reduce working capital for businesses and deny justice to taxpayers where they are unable to raise the amount,” it said.

The committee recommended doing away with the clause slapping locally manufactured glass bottles with 25 per cent excise duty, a win for manufacturers of beverages, including alcohol.

In its report, the committee said an increase in the cost of locally made glass bottles would favour imported products, contrary to the spirit of Big Four agenda and its promise on increasing local manufacturing sector’s contribution to the economy.

It also allowed proposals by different industry players to have inflation adjustment done every two years, which it said would give predictability of excise tax increases. The adjustment is done annually and usually sees a hike in products such as alcohol, juices and petroleum.

The committee also shot down Treasury’s proposal to tax advertising fees for betting activities, noting that they are already regulated.

The local beauty industry however suffered a setback after the committee allowed 15 per cent excise duty on cosmetics. Treasury had proposed to increase excise tax on cosmetics but manufacturers opposed, arguing that higher prices would result in an influx of fake products in the market. The committee, however, retained Treasury’s proposals, arguing that it would help fight fake products.

“The committee adopts the proposal in the Bill that the excise duty be at 15 per cent to discourage fake and counterfeit products in the market.”

Digital service tax, which Treasury wanted to increase to 3 per cent, has been retained at 1.5 per cent.