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Economy

Rotich hits motorists, women as lowest paid workers get relief

Treasury secretary Henry Rotich poses outside his office before heading to Parliament to present his Budget on June 8, 2015. PHOTO | DIANA NGILA
Treasury secretary Henry Rotich poses outside his office before heading to Parliament to present his Budget on June 8, 2015. PHOTO | DIANA NGILA  

Treasury secretary Henry Rotich on Wednesday did a delicate budget balancing act that hit women and motorists hardest even as he offered a rare relief to salaried workers.

The minister raided the purses of women with the introduction of a 10 per cent excise duty on cosmetic products that have been exempt of the tax — meaning they will pay more for personal care.

The Kenyan cosmetic industry is estimated to be worth over Sh8 billion, meaning Mr Rotich could raise up to Sh800 million with effective collection of the tax.

Motorists will pay an additional Sh6 at the pump for road maintenance, pushing the tax to a new high of Sh18 per litre, a move that effectively waters down the one-year deferment of the planned introduction of value added tax (VAT) on petroleum products.

The increase of road maintenance levy comes only a year after Mr Rotich added Sh3 on the tax, indicating that he intends to take the retail price to the highest level before loading on the 16 per cent VAT next September.

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Super petrol is currently retailing at Sh84.25, meaning the levy will push pump prices beyond Sh90 and force motorists to dig deeper into their pockets to keep their vehicles on the road.

Diesel, which is currently retailing Sh70.37 in Nairobi, will be priced at Sh76.37 per litre at the pump, shrinking the margins for commercial vehicles such as lorries and buses and ultimately increasing the cost of transporting goods and commuter fares.

Kenyans consumed 3.9 billion litres of diesel and petrol in the year ended December 2015. This means Mr Rotich could raise more than Sh23.4 billion in new funds to maintain and repair roads in the coming years from the increment alone.

“While the current low global petroleum prices may have provided the incentive to load additional taxes on fuel, the ongoing recovery of crude prices puts motorists on the road to bearing a heavier mobility burden going forward,” said Fred Omondi, a partner at Deloitte East Africa.

Kerosene prices are also set to rise by at least Sh7.25 per litre in a move Mr Rotich said is aimed at curbing its use in adulteration of petroleum.

Mr Rotich gave some relief to low salaried workers by delaying their entry into the higher tax bands with the promised widening of the ceilings by 10 per cent.

This means the lower band will now start at Sh11,181, up from Sh10,164, while the ceiling for the bottom tax band will rise Sh42,782 from the current Sh38,893.

The minister also increased deductible tax relief by 10 per cent to Sh15,338 from the current Sh13,944.

Households using cooking gas also won big gains from the budget after Mr Rotich scrapped the 16 per cent VAT from the commodity in an effort to reduce heavy reliance on toxic firewood and charcoal by low-income earners. The action is expected to lower refill prices by Sh400.

Refilling a 13kg gas cylinder costs an average of Sh2,252 while the 6kg cylinder costs about Sh1,200.

Buyers of low-priced cars also got a breather with Mr Rotich scrapping the specific duty rate, which favoured purchasers of fuel guzzlers, replacing it with a 20 per cent flat rate on the value of the car.

Buyers of car models costing less than Sh1 million are expected to be the major beneficiaries of the change that reverts the country to the pre-December 2015 position.

The introduction of the specific duty rate in December had pushed the duty of popular models such as Toyota Vitz, Toyota Belta (1290cc), Toyota Premio (1490cc) and Honda Fit (1290cc) by Sh165,793, Sh98,001, Sh124,000 and Sh145,291 respectively, causing an outcry among dealers and buyers.

Top-of-the-range models such as Range Rover V8 (5000cc), Toyota Landcruiser V8(4,600cc) and Mercedes Benz V6 (3500cc), however, enjoyed huge price cuts of Sh523,999, Sh344,000 and Sh1.27 million respectively.

Mr Rotich also moved to stop the loss of jobs in the metal sector with the introduction of a Sh20,000 tax on every metric tonne of steel and iron imports.

This is bound to uplift the steel sector, which has come under immense pressure in recent years as the increase in cheaper imports depressed growth and resulted in loss of over 20,000 jobs.

Local aluminium producers also stand to benefit from the proposal to raise import duty on the product from 10 per cent to 25 per cent.

Mr Rotich, however, raided air passengers’ pockets to finance the revival of tourism with the increase in service charges for external travel by Sh1,000 to Sh5,000 and internal travel by Sh100 to Sh600.

Regulatory levies charged by agencies such as the National Environmental Management Authority (NEMA) and the National Construction Authority (NCA) have also been scrapped as the government seeks to ease the cost of doing business in the country.

Sectors set to benefit heavily from the Sh2.3 trillion budget include infrastructure and education.

Mr Rotich allocated Sh154 billion to the standard gauge railway, Sh148 billion to roads, Sh5 billion to the port, and Sh40 billion to energy.

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