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Legal hurdles await Treasury as food prices spiral out of control

BUSINESS
By Macharia Kamau and David Njaaga | May 10th 2022 | 4 min read

 

A trader hawking brooms in Kakamega town on Feb 2, 2022. [Benjamin Sakwa, Standard]

 

A fierce court battle is shaping up between MPs and lawyers over controversial proposals contained in the Finance Bill, 2022 published by Treasury CS Ukur Yatani.

The Bill has already undergone the first reading and has been forwarded to the National Assembly’s Finance and National Planning Committee. It is currently undergoing public participation before being debated by lawmakers in the House.

The Finance Bill has proposed to introduce far-reaching tax measures through which the National Treasury is seeking an additional Sh50.4 billion in tax revenue over the next financial year that starts on July 1.

But the Law Society of Kenya (LSK) President Eric Theuri yesterday said his office has flagged 22 proposed amendments in the Bill, which he noted are problematic and likely to have dire consequences on the economy if passed into law.

These include the proposal to remove unga (maize meal) from the list of goods that are zero-rated.

“If the Bill is enacted as proposed, it will make the country highly unattractive as a business destination, increase the levels of unemployment, encourage the use of substandard or illegal products and ultimately lead to increased levels of insecurity,” he said during in a press conference at LSK offices in Nairobi. 

He urged MPs to reject the proposals, failure to which the lobby would challenge the Bill in court. “In the event Parliament does not yield to sense, then we will robustly challenge any changes in the law that are unconstitutional and against good order and public security,” said Mr Theuri. 

Kenyans, already reeling from an unprecedented high cost of living, can only hope that MPs will capture their views on the proposed law in the ongoing public hearings. 

The National Treasury in the Finance Bill 2022 has proposed the imposition of Value-Added Tax (VAT) on both wheat and maize flour. The two products are currently zero-rated, whereby they do not attract VAT in what is meant to keep their prices manageable, but Treasury has proposed to take away their zero-rated status in the Finance Bill 2022.

The imposition of the 16 VAT would significantly increase the prices of staples such as ugali, made from maize flour.

This is set to hit Kenyans, who are already grappling with the high cost of living that has in the recent past been exacerbated by the Covid-19 pandemic, hard.

In the Bill, Treasury also proposes to increase taxes on motorcycles, cosmetics and beauty products, jewellery, beer, wines and spirits, chocolate and bottled water.

Excise duty on motorcycles will go up by 10 per cent to Sh13,403.64 per unit, up from Sh12,185.16. Also up is the excise duty on beer (10 per cent ), spirits 20 per cent, glass 25 per cent, alcohol advertising fees 15 per cent as well as cosmetic and beauty products 15 per cent.

Tax disputes

Businesses that have tax disputes will be hard hit by a proposal to deposit 50 per cent of the disputed tax amount when they appeal to the High Court decisions of the Tax Appeals Tribunal.

Business advisory and audit firm KPMG notes that Kenya Revenue Authority (KRA) would have a difficult time raising the additional Sh50 billion that Treasury is seeking.

“In his budget speech, the Cabinet Secretary proposed tax measures that he expects to generate additional revenue of Sh50.4 billion. This is a relatively small amount when looked at in the context of the overall budget of over Sh2 trillion and is indicative of the shrinking avenues for raising additional revenue in an economy that is in turmoil,” said KPMG in an analysis of the Finance Bill.

Some of the measures are expected to lead to a further rise in the cost of living.

While there are proposals that are expected to boost the local vehicle assembly and pharmaceutical industries, there are those that could increase the cost of production and put other local industries at a disadvantage.

These include higher taxes for confectionery, alcoholic beverages and beauty products.

“As is now depressingly familiar, the published Bill has again been riddled with proposals that are unfriendly to both businesses and consumers and at a very difficult time in the economic cycle. We shall be vigorously defending our sector and consumers in the coming days,” said KAM reacting to Treasury’s proposals.

Tax experts noted that the proposal to have businesses dissatisfied with the ruling of the Tax Tribunal pay 50 per cent of the tax in dispute before appealing could be unconstitutional.

Deloitte noted that this could also affect companies and individuals that may not have adequate cash flows to pay the amount and many will opt not to appeal.

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