Rotich prolongs consumers pain with delayed tax relief
Treasury secretary Henry Rotich. FILE PHOTO | SALATON NJAU
What you need to know:
The schedule for implementation of the new tax measures indicates that the government has prioritised collection of more revenue, throwing execution of the tax relief measures to the back banner.
The list of new tax measures that came into force immediately includes the 10 per cent excise tax on cosmetic and beauty products, the Sh7.2 per litre excise tax on kerosene and a 20 per cent ad valorem tax on motor vehicle imports that immediately inflated the cost of luxury cars.
However, implementation of beneficial tax measures such as reduced Pay-As-You-Earn (PAYE) for lowest-paid workers and elimination of taxes on bonus payments and airtime have been spread out over the next six months, according to Finance Bill 2016.
Kenyans will have to wait longer for some of the tax benefits that Treasury secretary Henry Rotich announced in his Budget Speech earlier this month, even as they suffer the pain of new taxes that took effect immediately, the Business Daily has learned.
The implementation of beneficial tax measures such as reduced Pay-As-You-Earn (PAYE) for lowest-paid workers and elimination of taxes on bonus payments and airtime have been spread out over the next six months, according to Finance Bill 2016.
Besides, retailers have yet to pass on to consumers the benefits of liquefied petroleum gas’ (LPG) exemption from 16 per cent value added tax (VAT) — though the law says it should have come into force a day after the June 8 Budget Speech when a raft of new tax measures came into force.
The schedule for implementation of the new tax measures indicates that the government has prioritised collection of more revenue, throwing execution of the tax relief measures to the back banner.
The list of new tax measures that came into force immediately includes the 10 per cent excise tax on cosmetic and beauty products, the Sh7.2 per litre excise tax on kerosene and a 20 per cent ad valorem tax on motor vehicle imports that immediately inflated the cost of luxury cars.
The ad valorem tax ended the lower fee that importers of high-end cars enjoyed under the revoked regime, which lasted seven months. Under that regime, excise duty was fixed at Sh150,000 for cars aged less than three years and Sh200,000 for those older than three years.
The Finance Bill 2016 says the current PAYE tax structure will remain in force until January next year when the tax bands and monthly personal relief (MPR) will be expanded by 10 per cent each.
The new PAYE bands will see the workers’ tax bill fall by a few hundred shillings, mainly from expanding the MPR to Sh1,278 from the current Sh1,162. Those earning Sh50,000, for instance, will enjoy the biggest benefit of Sh616.
“These measures are meant to cushion the workers from high cost of living and demonstrate our commitments to sharing economic growth,” Mr Rotich said.
Delaying the introduction of the new PAYE bands and the MPR to January will, however, eat into most of the tax savings, mainly because the cost of living continued to rise at the rate of about 6.5 per cent in the 12 months to May.
LPG retailers have continued to charge 16 per cent VAT despite the Finance Bill stating that the tax should have been eliminated on June 9.
It was not possible to establish why the Kenya Revenue Authority (KRA) has continued to collect the tax beyond the said date, but the retailers insisted the taxman continues to collect the tax.
At the current price of Sh2,350 for a 13-kg cylinder, retailers are incorporating a VAT of about Sh400. Once eliminated, the price of a similar quantity of LPG should fall to Sh2,000.
The lowest-paid workers will on the other hand start benefiting from the elimination of bonuses, overtime and retirement benefits taxes starting next month.
The tax benefit will only apply to workers whose taxable employment income before bonus and overtime allowances do not exceed the lowest tax band which currently stands at Sh10,164 per month or Sh121,968 annually.
This threshold will rise to Sh11,180 per month or Sh134,164 annually once the new MPR and PAYE structure comes into effect in January.
The first band is taxed at a rate of 10 per cent, with the taxes rising in a series of taxable income that terminates at the maximum of 30 per cent on the highest band (currently applicable to those earning Sh38,893 a month and above).
Taxpayers are unhappy with the fact that benefits accruing from the new tax measures Mr Rotich announced are taking long to apply while those increasing their tax burden have come into force immediately.
For low-income households, who use kerosene for lighting and cooking, the introduction of excise duty at the rate of Sh7.2 per litre is expected to start applying beginning mid next month.
Kerosene’s current retail price of Sh50.8 per litre in Nairobi did not factor in the new tax, meaning that consumers should expect a steep rise in pump prices when the Energy Regulatory Commission (ERC) reviews prices next month.
Motorists were, however, spared instant computation of the road maintenance levy, which Mr Rotich said will rise from Sh12 per litre to Sh18 per litre.
The enhanced levy is, however, expected to become a reality with next month’s review of fuel prices.
“In regards to changes in the road maintenance levy that were proposed in the 2016/17 budget, the commission is in consultation with the Kenya Roads Board and the Kenya Revenue Authority to establish the implementation date,” the ERC said during its latest review of petroleum prices mid this month.
“This will enable the commission to factor in the increased levy in the subsequent pricing of super petrol and diesel.”
The government says the new tax measures will help raise total revenues to Sh1.5 trillion in the current fiscal year, up from an estimated Sh1.2 trillion the previous year.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
