Amendment to VAT Bill to leave KRA Sh4.2b shy

By Alphonce Shiundu

Nairobi, Kenya: New proposals to amend the Value-Added Tax Act will leave a Sh4.2 billion hole in government revenues.

The verdict was given Tuesday at a meeting of the Budget and Appropriations Committee that was auditing the VAT (Amendment) Bill, 2013.

The Parliamentary Budget Office, an advisory team of economists and fiscal analysts, argued that if the VAT levied on newspapers, journals and periodicals is removed, the Kenya Revenue Authority will lose a minimum of Sh1.25 billion.

Also, the Budget Office is clear that the exemption of postal services from the tax will leave the taxman with Sh500 million hole in his budget.

It further said the dent on the Kenya Revenue Authority was good because of the expected benefits in reducing the cost of living and the expected increase in the disposable incomes.

“The economy could benefit from a slowdown in inflationary expectation and stable economic growth,” the report noted.

However, the economists and fiscal analysts, whose job is to advise MPs on economic issues, said the postal services have been waning due to competition from mobile phones and the internet. They said MPs can exempt it from VAT to save the sector.

The proposed law also seeks to have all households who use electricity of up to 200kilowatt-hours exempted from paying tax on electricity. The law also proposes that supplies to the Rural Electrification project should also be exempted.

The rationale is that even though the government will lose up to Sh1.8 billion in taxes foregone, the socio-economic impact will be so huge.

The bill by John Mbadi (Suba) seeks to have fishing nets, mosquito nets, ambulances and hearses, sanitary and pest-control services, animal feeds, insecticides, fungicides and herbicides, and the supply of water drilling services all exempted from the 16 per cent tax.

VAT on insecticides, fungicides and herbicides are estimated to net Sh216 million in taxes, VAT on credit reference bureau services will net Sh184 million in taxes, while VAT on animal feeds was expected to net Sh183 million.

The lawmaker wants it in law that milk in packets, which the taxman has already clarified does not attract the 16 per cent levy, also included in law. He argued that if KRA is keen on having the milk outside the VAT bracket, then it should have it in law.

The MP also wants M-Pesa transactions below Sh10,000 exempted from VAT. It is not clear how that will tailor in with the law as it is, because mobile money is exempted from VAT.