Tough times ahead as MPs retain 16pc VAT on fuel, up export levy

Molo Mp Kimani Kuria flanked by members of the Finance and national planning committee address the press at Simba Lodge in Naivasha after meeting senior staff from KRA. [Antony Gitonga, Standard]

Kenyans should brace for tough times ahead after the Finance and Planning Committee of the National Assembly recommended doubling Value Added Tax (VAT) on fuel from eight to 16 per cent.

The committee, chaired by Molo MP Kimani Kuria recommended retaining the tax as per the controversial Finance Bill 2023.

Speaking to The Standard in Naivasha, committee members who sought anonymity said they were considering memorandums from the public in regard to some contentious clauses in the Bill but VAT is not one of them.

The committee recommended increasing VAT on fuel despite the prices having risen to new levels following the impact of the Russia-Ukraine war and the removal of subsidies.

This means fuel prices are set to go up again, pushing the cost of living to new heights as President William Ruto seeks to raise an extra Sh50 billion from the new tax measures.

Currently, super petrol, diesel, and kerosene retail at Sh182.7, Sh168.4, and Sh161.13 per litre, respectively but now oil marketers are likely to feel the pinch due to extra financing.

The Finance Bill 2023 is also proposing to introduce a new sub-section to section 17 of the VAT Act to allow for the owner of taxable supplies, who is compensated for the loss of the goods to pay 16 per cent VAT.

Public outcry

However, the import declaration duty has been reduced. The 500-page report with 1,000 annexes is expected to be tabled today in the National Assembly's afternoon sitting.

Although VAT has been retained some contentious clauses have been edited out following public outcry.

The three per cent housing levy that sparked public outrage has been reduced to 1.5 per cent of the basic pay. One of the committee members, however, confirmed that the housing levy will not be implemented immediately until a legal framework and the right regulations are put in place. This will help establish how the said funds will be collected and utilised.

This, the member said arose from some of the petitions received, where most Kenyans are mainly concerned about the accountability of the funds as it's not stated how and to whom they claim their money.

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The president has been pushing for the housing levy to implement his housing agenda and job creation.

On betting, the committee has recommended a reduction of the tax from 20 per cent to 12.5 per cent in a move that "will help push the president's agenda on sports," said a member of the Committee.

On Friday the president launched the Talanta Hela initiative that will be used to monetise talents in sports and the creative industry to boost bottom-up economic transformation in the sector and will begin with football.

During the launch of the Kenya Kwanza Alliance manifesto, Ruto enumerated sports agenda promising to build a sports garment industry in the country.

Content creators who had faulted the government's plan to introduce a 15 per cent withholding tax on income generated from digital content monetisation, will now pay a five per cent withholding tax.

While meeting content creators early this month, the president ordered a review of the proposed tax, asking the committee to rethink the said clause. "It's said that the debate will still be ongoing as some members felt some of these content creators earn abnormally and they parade their wealth which sometimes is an insult to someone who cannot afford so it's still debatable," one member said.

Money transfer

And although the State had proposed to raise tax on mobile money transfers from 12 per cent to 15 per cent, the committee has recommended for the same to be retained at 12 per cent as it's used by millions to send and receive money daily.

The proposed changes contained in the Finance Bill 2023 sought to raise the excise duty on money transfer services by telecommunication firms, a move that would have drastically pushed up the cost. "We wanted it to be reduced so that it can accommodate the people at the bottom," the source said

The clause that proposes to introduce a higher personal income tax rate of 35 per cent for people earning more than Sh500,000 has also been amended and clustered into two.

According to our sources, the committee is proposing to net more from high-income earners by introducing a new Pay-As-You-Earn tax band at 35 per cent for persons whose gross monthly income is more than Sh800,000 and 32 per cent for that earning between Sh500,000 to Sh800,000.

The committee has also adjusted the timeline of remitting withholding tax to five days. The Bill seeks to have persons who receive rental income on behalf of the owner deduct and remit withholding tax to the Commissioner within 24 hours.

The withholder will also be required to furnish the Commissioner with a return in writing stating the tax deducted and any other information required.

Further, the Commissioner will be expected to furnish the owner of the rental income with a certificate stating the amount of rent and the tax deducted therefrom.

The Bill will go through the second reading at the committee of the whole House giving the opportunity for legislators to vote on the Finance Bill clause by clause, meaning that they can reject some of the controversial proposals and adopt them before the Treasury Cabinet Secretary Njuguna Ndung'u reads the budget statement.