The Kenya Kwanza administration has proposed tax measures that are set to see the already high cost of living go even higher for majority Kenyans as the government seeks to increase tax revenues in its first budget.
From salaries to spending the government is targeting a raise in taxes. For starters, Kenyans earning more than Sh500,000 per month will be hit hard with a proposal to increase Paye from 30 per cent to 35 per cent.
The proposal is contained in the Finance Bill 2023 that Treasury presented to Parliament last week.
The Bill has also proposed imposition of a three per cent housing levy on an employee’s basic salary that will then be matched by their employers. This is however capped at Sh5,000 per month.
The Bill note that employees can either use the money saved to acquire homes or get their money in cash upon retiring or after expiry of a seven year period after they start saving, whichever is earlier.
“For employees who qualify for affordable housing the contributions accrue to the employee and shall be used to finance the purchase of a home under the affordable housing scheme,” reads the bill.
The Finance Bill has also proposed changes to the Income Act requiring some taxpayers to remit certain taxes within 24 hours of collection. These include betting firms and landlords’ rental income, unlike in the current situation where they are required to remit before the 20th day of the following month. The Bill also empowers KRA to demand taxes from any business or individual to pay tax within 24 hours after a transaction is concluded.
“The Commissioner may, by notice in the Gazette, require taxpayers in any sector to remit excise duty collected on certain excisable services within twenty-four hours from the closure of transactions of the day,” reads a section of the bill. It is however more specific that digital asset tax, income tax on rental income as well as excise duty on betting should be remitted to KRA within a day.
“A person who deducts rental income tax under this section (Section 35) shall, within 24 hours after the deduction was made remit the amount so deducted to the commissioner together with a return in writing of the tax deducted and such other information as the Commissioner may require,” reads a section of the Bill.
It goes on to say that “excise duty on betting and gaming, offered through a platform or other medium, shall be remitted to the Commissioner by a bookmaker within twenty-four hours from the closure of transactions of the day”.
Perhaps to the relief of consumers and businesses, Treasury has proposed doing away with the annual inflation adjustment on excise duty by repealing Section 10 of the Excise Duty Act (2015). The section allows KRA to increase excise duty on different products to cater for inflation. This has in the past affected prices of such products as fuel, alcoholic beverages, cigarettes, bottled water, fruit juices and confectionery.
Users of cooking gas will also enjoy some relief as Treasury proposes to add Liquefied Cooking Gas (LPG) to the list of items that are VAT exempt. VAT on cooking gas was introduced by the Finance Act 2022 at a lower rate of eight per cent. Treasury has now proposed the deleting the section that introduced the tax on LPG and also added it to the First Schedule of the Act that lists VAT exempt supplies.
The new administration has been eyeing a growth in revenue collections and said it will undertake reforms in tax policies as well as how KRA goes about collecting taxes. This is expected to increase tax revenues to about Sh4 trillion with the administration’s first term in office from Sh2.03 trillion in the year to June 2022.
“With… reforms in tax policy and administration, total revenue including appropriation in ad is projected at Sh2.89 trillion,” said Treasury in the budget documents that it tabled in Parliament last week together with the Finance Bill 2023.
“The fiscal policy will target to grow revenues to 17.8 per cent of GDP in the 2023/24 financial year and above 18 per cent of GDP over the medium term. As part of the economic turnaround plan, the government will scale up revenue collection efforts by KRA to Sh3 trillion in the 2023/24 financial year and Sh4 trillion over the medium term.”