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Power, DSTV, Internet to go up as companies slap consumers with higher taxes

By Dominic Omondi | January 5th 2021
KRA headquarters in Nairobi (PHOTO: Wilberforce Okwiri)

Companies have started slapping consumers with higher prices for goods and services as pre-Covid-19 tax rates resume.

This will see Kenyans pay more for internet connection services and TV subscription fees, such as DSTV, in what is likely to pile pressure on a consumer base adversely affected by the pandemic.

Value-added tax reverted to 16 per cent following a nine-month hiatus during which the sales tax had been reduced to 14 per cent to cushion consumers against the negative effects of Covid-19.

Power consumers will also be hit hard as the higher rates become effective, increasing the burden on Kenyans who have already been grappling with the high cost of electricity.

The 16 per cent VAT on electricity is applied to consumption, fuel cost charges and forex adjustments.

The costs of other products, such as alcoholic drinks, mineral water and detergents, will also go up as the consumption rate reverts to the pre-pandemic level of 16 per cent.

A myriad of tax relief measures that were introduced by President Uhuru Kenyatta in April, together with the subdued demand due to implementation of containment measures, retrenchments and salary cuts, contributed to a drop in the cost of living.

As a result, inflation - or the overall increase in the prices of goods and services - dropped between May and September. However, it started to rise as economic activity picked up due to the partial re-opening of the economy.

The Treasury has since reversed most tax relief measures to help the government collect more taxes to finance its expansive budget.

Ken Gichiga, the chief economist at Mentoria Economics, a business consultancy, said the government could have waited for the demand side to build up since recovery is still weak. He, however, acknowledged that the State needs revenue.

“I thus expect the recovery process to be drawn-out a bit longer,” he said.

Besides VAT reverting to 16 per cent, income amounts of more than Sh32,333 will attract a Pay as You Earn (PAYE) tax of 30 per cent. Between April and December 31, the highest applicable rate for PAYE was 25 per cent.

The effect of increased PAYE is a reduction in disposable income for most workers, which together with an increase in VAT means they will buy fewer products for the same amount.

Meanwhile, the digital tax service will make its debut this month, with those selling items online expected to start paying 1.5 per cent of their sales to the Kenya Revenue Authority (KRA).

“Digital tax shall be due at the time of transfer of payment for the service provider,” said KRA in a statement.

The taxman noted that for residents and companies with a permanent presence in Kenya, the digital tax will be offset against income taxes due in the year of income.

But for non-residents and companies without a permanent establishment in Kenya, the tax will be a final one.

Gichiga said the government is probably eyeing the lucrative online market that has thrived even more during the pandemic period as most Kenyans went digital to avoid physical contact. He, however, warned the State to be cautious even as it sought to broaden its tax base, noting that it is in the online space that start-ups have found fertile ground.

“It is important that we don’t kill the goose that lays the golden eggs,” said Gichinga.

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