MPs' move on taxes offers relief to farmers, struggling urban families

The Treasury building, Nairobi. [Elvis Ogina, Standard]

Lawmakers have made final changes to the National Treasury’s revenue-raising plan.

The MPs move is part of a grand scheme to woo voters, including farmers, boda boda operators and millions of urban families whose dining table is never complete without ugali or chapati.

In a double-pronged approach, the MPs this week protected millions of farmers from cut-throat competition from cheap imports even as they cushioned urban consumers against an increase in food prices by reducing taxes on wheat flour, maize flour, cassava flour and bread. 

The MPs made amendments to the Finance Bill 2021, slapping imported onions, potatoes, eggs, potato crisps, and chips with a punitive excise duty of 25 per cent in what is aimed at protecting local farmers.

This, in addition to the 16 per cent Value Added Tax (VAT), two per cent import declaration fees and the railway development levy of 1.5 per cent that is levied on imports, will push up importers’ final price, leaving their Kenyan counterparts with a fighting chance in the market.

This comes at a time when Kenyan farmers are struggling to stay afloat against a heavy tide of cheap imports from outside the East African Community (EAC), a customs union that includes Kenya, Tanzania, Uganda, Burundi and Rwanda.

The Standard recently carried a story of how cheap onions, garlic, leeks, and shallots from China have been flooding the Kenyan market.

Kenya also imports eggs from South Africa and chicken from Spain despite a thriving poultry business in the country.  

This also comes at a time when legislators are preparing for an intense campaign season with most of them unsure of their re-election chances.

Producing the sweetener

Kenyans are expected to elect their next president, governors, senators, members of the National Assembly, and members of the County Assembly. Most voters are farmers.

Official data show that over half of Kenyan families (6.3 million households) eke a living by either growing crops or rearing livestock.

Agriculture, for long described as the mainstay of Kenya’s economy, contributes over a third of the country’s gross domestic product (GDP), or the national cake.

Exporters will also not pay VAT on transport of their goods, a move that will significantly aid producers of tea, coffee, vegetables, fruits and flowers which earn the country much of its hard currencies.

A tea plantation in Kericho County. [Wilberforce Okwiri, Standard]

And with Kenya’s tourism sector still limping from the shock of Covid-19 pandemic, these crops will play a major role in replenishing the country’s stock of foreign currencies.

Sugarcane farmers will also have something to smile about after MPs removed 16 per cent VAT on transporting cane from the farm to the factories, a move that is aimed at reducing the cost of producing the sweetener.   

Non-farmers in urban areas, including slum dwellers who make up a good chunk of voters, should also get cheap bread, chapati and ugali after the MPs removed the 16 per cent VAT on bread, wheat flour and maize flour.

The removal of the VAT does not apply to the final product alone but also the inputs used to produce them.

Fish farmers, who have also been competing with imported fish from China, have also been rewarded.

Supplies of fish-related items, including fish feeding and handling equipment, cold storage, fish cages, and many others, will be exempt from VAT.

“It is expected that this will make cage fish farming cheaper in order to enhance the production and sale of local fish and make them competitive with the imported fish,” read a brief on the amendments from Parliament.

Imported furniture

Carpenters have also been shielded from competition after MPs, in addition to the 25 per cent import duty that Treasury had earlier proposed to be levied on imported furniture, slapped them with an excise duty of a similar margin.   

The International Monetary Fund (IMF), which has a Sh256 billion deal with Kenya, had warned that the upcoming political season might jolt the Treasury’s austerity plan aimed at reducing the country’s debt vulnerabilities by spending less and raising more taxes.

“The programme remains subject to notable risks, including from uncertainty about the path of the pandemic and potential pressures from the upcoming political calendar,” said Antoinette Sayeh, deputy managing director and acting chair of IMF’s Executive Board, the Fund’s highest decision-making organ.

Gladys Wanga, the chair of the Finance Committee, noted that these changes, which are largely aimed at cushioning ordinary wananchi in an economic downturn, would not result in depressed earnings for the National Treasury.

If anything, said the Woman Representative for Homa Bay County, Treasury might end up collecting more from these additional tax measures, which also include heightened excise duty on betting, imported pasta, potato crisps.

Treasury might end up collecting more from these additional tax measures, which also include heightened excise duty on betting, imported pasta, potato crisps. [Courtesy]

Wanga said that both her committee and Treasury agree on the need to reduce the tax expenditures (payment of tax refunds for zero-rated products), which has seen the country lose over Sh560 billion in revenues every year.

“The only thing is in this difficult economic times, if you we remove an item like bread or unga, the cost will go to mwananchi,” said Wanga, adding that the move to zero-rate bread, wheat flour, cassava flour and maize flour is seasonal to cushion consumers during this difficult times.

“Once things stabilise, and the economy is doing well and people have money in their pockets, then we will remove the claim on inputs.” 

In his Budget speech, Treasury Cabinet Secretary Ukur Yatani imposed an import duty of 30 per cent on all imported potatoes, onions, tomatoes.

Additionally, imported products have to pay the 16 per cent VAT, import declaration fee of two per cent and railway development levy of 1.5 per cent.

But there are also fears that some of these changes, if not accompanied with an improved business environment, will only add to the cost of living by consumers as both local and imported products become costlier.

Other big winners in the latest changes are importers of motorbikes after MPs shot down Treasury’s proposal to revise excise duty on imported motorcycles from a fixed amount of Sh11,608 per unit to 15 per cent of the excisable value.

This targets the ubiquitous boda boda sector that has come to employ millions of youth and spawned a movement that politicians will be hoping to tap into in the next polls.

Proposed changes

MPs, however, agreed to increase excise duty on telephone and internet services from 15 to 20 per cent.

This will increase the cost of calling and browsing at a time when Kenyans are expected to operate virtually, with President Uhuru Kenyatta’s government relying on increased digitisation to help the economy recover.

Gamblers will also not have it easy after MPs proposed to increase excise duty to 30 per cent, which will be spread to all betting and gaming transactions, including betting, gaming, prize competitions and non-charitable lotteries.

Gamblers will not have it easy. [Courtesy]

Treasury had proposed to introduce an excise duty of 20 per cent on the amount wagered.

Other losers in the latest proposed changes to the Bill aimed at helping the government raise Sh1.8 trillion in taxes is the importation of confectionery sugar that will see its tax raised from Sh20 per kilo to Sh35.

Plastic syringes, which had also been lined up for a 16 per cent VAT, will be spared should MPs approve the committee’s proposal.

MPs also agreed with the Finance Committee’s proposal to remove VAT on all baby food, including milk specifically prepared for infants in what is a win for parents.

They also rejected Treasury’s proposals to have changes on VAT not be approved by the National Assembly. 

The proposal for companies to get a tax break for employing 10 technical institutions graduates got a boost with the lawmakers reducing the number to at least five instead of 10 for an employer to qualify for the benefit. 

Manufacturers of paint, resin and shoe polish will also be smiling after the committee exempted them from the anti-adulation levy charged on kerosene, a critical input in their production process.

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