Who will be smiling, who will be in tears in 2018

A customer check price of sugar at Mama Watoto Supermarket in Kakamega in 2015. Many are expecting the government to reduce taxes on common commodities. [Benjamin Sakwa| Standard]

Prices of some basic consumer commodities are expected to increase because of new taxation measures that came into force on January 1.

Gamblers, who were slapped with higher taxes have protested, but consumers too will have to pay more following expiry of a Government subsidy that facilitated low-cost maize flour.

Yesterday, the price of Alpha Grain Millers’ Kifaru maize flour rose to retail at Sh185 per two-kilogramme packet and Hostess maize flour at Sh149, three days after close of the subsidy that saw the commodity sell at Sh90 for more than six months.

Retailers expect milk and sugar prices, which similarly enjoyed subsidies, to be adjusted upwards in the coming days (see separate story on page 7).

However, it will all be good news for pensioners and low-income earners who will be spared the taxman’s wrath. Also to enjoy some tax relief are consumers of cooking gas (liquefied petroleum gas, LPG), motor vehicle assemblers and investors in special economic zones.

Budget speech

The changes to the tax regime were announced in the budget speech in March 2017 but came into force this week.

For the losers, this will be doubly painful. The punitive tax measures come at a time when parents - most of whom splurged the little cash they earned from a difficult 2017 on festivities - are now racking their heads on school fees. 

Starting January 2018, the poor will be denied the only reprieve they had in a turbulent 2017 - lower prices of basic food commodities including maize flour, milk and sugar. 

The subsidies have come to a screeching end to hit poor folks who spend over a third of their income on food.

Lovers of ugali have since last year bought a two-kilogramme packet of maize flour at Sh90 and a kilogramme at Sh47 since May, 2017.

With the market forces being allowed to take over from Monday this week, the price of unga has immediately shot up by an average 80 per cent. This will hurt the pockets of millions of poor Kenyans for whom ugali, whose main ingredient is maize flour, is a staple.

The phasing out of the maize subsidy programme will also hurt importers, including cereal millers, who pocketed a cool Sh9 billion from the Government to ensure the discounted prices prevailed.

“We’ve agreed that the subsidy programme will officially come to an end on December 31,” said Agriculture Cabinet Secretary Willy Bett in a press conference. Bett would later on assure consumers that he would not let the price of a two-kilogramme of maize flour go beyond Sh120. 

A duty waiver on sugar and powdered milk imports, which was introduced in June 2017, also came to an end last month, raising fear that consumers might be staring at a high cost of living in 2018.

After a crippling drought that ravaged the country, prices of maize flour, milk and sugar last year went beyond the reach of the common mwananchi, forcing the Government to intervene by removing import duties on the three foodstuffs.

However, with the onset of the rains, harvest of most produce increased and year-on-year inflation came down to 4.4 per cent in December 2017, up from a five-year high of 11.7 per cent in May.

Gambling industry

The Government, which has also lost billions in tax revenues as a result of the waivers, believes the country can now feed itself and badly needs the lost revenue to fund its programmes.

The gambling industry is the hardest hit by the new tax measures that became effective on January 1, 2018. Already, betting company Sportpesa has withdrawn sponsorship of a number of sporting activities in the country, including soccer and rugby.

This is in an apparent protest to an amendment on the tax law that will see levies on betting, lottery and gaming competition companies raised from the current rates of 7.5 per cent, five per cent, 12 per cent and 15 per cent respectively to a uniform rate of 35 per cent.

This tax is in addition to the normal corporation tax of 30 per cent that the State takes from a company’s profit. 

Sportpesa had moved to High Court to have the amendment rescinded but their prayers were declined.

“Unfortunately, we lost the case. We regret the decision,” said SportPesa Chief Executive Ronald Karauri.  

County governors will also lose close to Sh4.3 billion they have been receiving every financial year since 2013 from the National Treasury for the free maternity programme.

This is after the Government moved the programme to the National Health Insurance Fund (NHIF) following complaints of funds misuse. Mothers have already been advised to register with NHIF if they want to continue enjoying free maternity services.

“The free maternity services that have been in operation since June 2013 have now been transferred to NHIF under the Linda Mama Programme. Mothers who need to benefit from this programme should be registered with NHIF,” said acting Kenyatta National Hospital Chief Executive Bernard Githae in a statement.

Governors have yet to react to the development, but are expected to come out fighting.

Although the Government intends to use the programme to drive up the membership of NHIF, the change is likely to inconvenience pregnant women in remote areas.

Retirement schemes will also be slapped with a penalty of Sh100,000 should they fail to submit any statutory requirement by the due date.

They will also pay a further penalty of Sh1,000 each day they continue to be in default, in a move that will see most pension schemes suffer as most have exhibited tardiness when it comes to furnishing the Retirement Benefits Authority (RBA) with their financial statements. 

Shareholders of companies put under receivership are also likely to be losers after Treasury was given the mandate to extend the period of receivership by 12 months as opposed to six months.

This means shareholders of companies under receivership will have to wait longer for settlement.

Among the winners this year will be low-income workers, those who earn less than Sh13,486 a month, who will not be subjected to pay-as-you-earn (PAYE) after the Government raised the tax bands in a move aimed at helping low-income earners cope with the steady rise in prices of commodities.

Personal relief

Effective January 1, those who take home a monthly income of less than Sh13,486 will not be taxed after the Government increased personal relief (the amount returned to workers after tax every month) by 10 per cent from Sh15,360 per year to Sh16,896 per year.

Before, the lowest taxable income was Sh12,260 per month.

This is a reprieve to subordinate staff such as cleaners, security guards, office messengers and cooks who have been shielded, albeit partially, from the effects of inflation.

“This measure will to a large extent increase the take-home income of a majority of low-income earners,” said National Treasury Cabinet Secretary Henry Rotich in his budget speech.

German and French car makers Volkswagen and Peugeot, which recently set up assembly plants in the country, will also have it easy this year. This is after the tax-code was amended to allow for newly incorporated local assemblers of motor vehicles to pay corporate tax of 15 per cent as opposed to the normal 30 per cent.

The reduced rate is applicable for the first five years from when the manufacturers start operations and should they achieve a local content of 50 per cent, the rate will be extended for another five years.

Investors in Special Economic Zones (SEZs) - areas in which business and trade laws are different from rest of the country - will also get tax breaks starting this month.

Enterprises in the SEZs will pay corporation tax of 10 per cent for the first 10 years and 15 per cent for the subsequent 10 years.