Budget experts in Parliament want MPs to reverse tax cuts on cooking gas and capital goods introduced by President Uhuru Kenyatta government on grounds that the tax measures could curtail revenue mobilisation efforts.
The Parliamentary Budget Office (PBO) argues the reduction of corporate income tax (CIT), value-added tax (VAT) on liquefied petroleum gas (LPG), VAT exemption on capital goods meant to promote investment in the manufacturing sector and zero-rating of services in support business processing outsourcing (BPO), among others, would lead to unprecedented revenue loss which may not have been envisaged in the original revenue forecast.
Parliamentary Budget Office — the unit which advises MPs on financial and economic matters — argues that the tax policy measures may potentially undermine the implementation of the budget for the 2022/23 financial year and the medium term.
The Treasury projects that the total revenue collection for the financial year 2022/23 will amount to Sh2.4 trillion, with ordinary revenue collection contributing Sh2.1 trillion and appropriations in aid raising the remaining Sh321 billion. The Treasury also targets Sh997 billion from income tax collection and Sh585 billion for VAT collection.
In its Budget Watch 2022 and the Medium Term, the PBO said the tax policy changes in the current fiscal year under the income tax regime are aimed at expanding the tax base as well as easing the administrative burden. “Nonetheless, it is worth to note that some tax policy measures that were introduced are likely to curtail revenue mobilisation efforts,” the PBO said in an advisory to MPs.
The budget experts said the reduction of CIT from 30 percent to 15 percent for companies operating carbon exchange or emission trading systems as well as companies operating shipping businesses, will not only lead to revenue loss but also affect the principle of fairness.
“Further, it is noted that whereas the investment deduction regime was overhauled in 2020 by removing the hitherto certain investment deductions that were as high as 150 percent and limiting them at 50 percent with some few exemptions at 100 percent, the policy changes in 2022 saw a return to investment deduction to 150 percent for investments outside the cities,” the PBO said.