Parliament on Thursday passed to impose a 10 per cent tax on fees charged for money transfers by telecommunication companies, agencies and banks, and a tax of a similar amount on other fees charged by financial institutions in bid to raise money to pay for salary increments in the civil service.
Finance minister Njeru Githae, while speaking to the media on Friday, confirmed that the House had passed an amendment to the Customs and Excise Act introducing the new measures which the government expects will raise an additional Sh4.5 billion in the current fiscal year.
The move is expected to either eat into the profits of firms which provide these services or result in an increase of money transfer charges and other fees charged by financial institutions including commercial lenders which will be paid by the consumers.
“Parliament yesterday (Thursday) passed an amendment to the Customs and Excise Act introducing a 10 per cent excise duty on fees charged for money transfers…passed a 10 per cent excise duty on other fees charged by financial institutions,” said Mr Githae.
He added that the House also passed amendments to the Income Tax Act introducing a simplified form of withholding tax on proceeds of property and shares of mining, oil companies, and oil and gas prospecting firms, a move expected to net an additional Sh1.5 billion.
Mr Githae however said that the taxes will be borne by the service providers and that he does not expect firms providing these services to pass on the cost to consumers.
“These charges will be paid by the service providers and not the customers that is what the law says.”
The amendments were moved by Chris Okemo, chairperson of the departmental Committee on Finance, Planning and Trade.
Mr Githae said that the passage of the VAT Bill 2012 will also result in an additional Sh5 billion, another Sh5 billion will be paid through PAYE taxes by the public service employees while an additional Sh8 billion will be raised through the surrender of surpluses by public entities.
The Treasury said the recent pay increment to teachers and doctors had resulted in an additional obligation of Sh25.5 billion.
The new taxation and austerity measures that the government has introduced are geared towards raising Sh40 billion to meet the higher public wage bill demands.