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Finally, it is pay time and this is how it will hurt you

By Moses Michira | Published Thu, June 14th 2018 at 00:00, Updated June 14th 2018 at 13:19 GMT +3
Treasury CS Henry Rotich during the opening of KIPPRA annual regional conference 2018 in Nairobi. [David Njaaga/Standard]

Life just got tougher for millions of poor households following sweeping changes in new taxation measures to be unveiled by National Treasury Cabinet Secretary Henry Rotich this afternoon.

He will impose Value Added Tax on essential commodities such as milk and bread that have been previously exempt, raising their prices by about a fifth in his plans to raise nearly Sh1.8 trillion.

Nearly half of that amount will go into paying debts to lenders including China – which has funded tens of mega projects including the Standard Gauge Railway line.

Such measures come to effect in just two weeks at midnight of June 30, hitting where it hurts the most, right in your pockets. For households that are already struggling, the impact of the imminent price hikes is untold.

A packet of milk currently retailing Sh50, for instance, would rise by Sh10. A two-kilo packet of maize flour will edge towards Sh130. So brace yourself.

Deliberate efforts to cushion the poor from the high cost of living prompted the Government to exempt the essential commodities since 2013 when Rotich first crafted the budget.

Philip Muema, a tax expert, told The Standard yesterday that the Government has full determination to collect as much taxes as possible. Among the proposals under consideration and likely to be passed, considering the absolute majority support that the Government has in Parliament, include application of VAT and presumptive taxes.

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Sure targets

“It is likely that the proposals contained in the Finance Bill to be tabled today will get approval because the State needs money to fund the Big Four agenda,” Mr Muema, the Managing Partner at Andersen Tax said.

VAT will specifically be easy to implement because it is levied at source, making it a sure target for Rotich who has given the Kenya Revenue Authority the biggest target in history. For small traders such as mama mbogas, the hit is two-fold considering that presumptive taxes will be a new reality.

Muema said the taxes – which are a percentage of a trader’s imagined turnover, would be collected together with the ordinary payable fees such as amounts paid for the various licences.

Deployment of technology by KRA in tax assessment and subsequent revenue collection will sharply slash opportunities for evasion while ensuring that everybody pays their fair share, he added.

Benson Korongo, the KRA Commissioner in charge of domestic taxes, has in recent days confirmed that many tax exemptions will be swept away to ensure the revenue targets are met. “We are looking at exemptions on several products that are widely consumed but now on VAT such as milk, sugar, maize flour, wheat flour…,” he said, confirming the worst fears for the ordinary Kenyan.

Among the expected benefits of a uniform taxation regime, Korongo added, will be enhancing ease of application.

KRA’s target for the next financial year is 17 per cent over the near Sh1.5 trillion for the period ending June 30, a huge jump whose attainment would require unprecedented measures.

Mr Rotich will speak of the amendments in his budget speech in the afternoon before they are subjected to debate by MPs.

Typically, tax proposals in the Finance Bill sail through Parliament without amendments because they are sponsored by the Government- which also enjoys a clear majority.

Unlike in the previous one which was friendly to consumers largely because it fell in an election year, he would easily introduce any changes now - regardless of how the mwananchi will react.

Already, Rotich has indicated that cooking gas will also be subjected to VAT which was suspended in December 2016. Rotich is also targeting dividends earned by members of cooperative societies, raising the tax two-fold to 10 per cent.

More than 3.6 million Kenyans who are savers in Saccos are members are the target of this amendment that would easily help KRA to raise additional billions.

Profits realised from the sale of property have been raised four-fold to 20 per cent, in one of the most aggressive proposals.

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