Members of Parliament dropped income taxes on their mileage claims, making it the icing on the cake on a list of sweeteners dangled by the government to have them endorse some of the painful taxes in the House.
The Treasury also handed MPs Sh1.5 billion, hived off from the first supplementary budget for the 2022/2023 fiscal year, as a seed fund for putting up 100 houses per constituency, even as opposition to the controversial Housing Fund that has since been converted into a tax raged.
MPs have been charged with identifying public land in their respective constituencies where such houses would be put up.
The legislators are also pushing through, with the backing of President William Ruto’s administration, two Bills that will ensure they retain the Sh44 billion National Government Constituencies Development Fund (NG-CDF).
A ruling by the Supreme Court last year found the CDF Act, 2013 in violation of the principle of separation of powers.
The ruling was a big blow to them given the fund gave MPs control over grassroots projects and has been a key re-election campaign tool for them.
By dropping taxes on mileage, MPs will get a cushion from expected pay cuts from the new 35 percent tax band that will hit top earners from next month.
The Finance Bill 2023, passed despite a spirited fight by the opposition MPs, will hand the government more than Sh200 billion from extra taxes.
It carries a raft of tax changes that will hit consumers hard, key among them the doubling of Value Added Tax on fuel to 16 percent.
The Bill also added two income tax tiers of 32.5 percent for income between Sh500,00 and Sh800,000 per month, and 35 percent for those earning more than Sh800,000 per month.
For Kenyans earning Sh800,000 per month, their new top band of 32.5 percent will see them pay Sh242,283 in total PAYE before relief, up from Sh234,783 previously.
For those earning Sh1 million, the tax obligation rises to Sh312,283, up from Sh294,783, due to the additional two PAYE bands on their pay.
These directly affect MPs, who earn a basic salary of Sh710,000 plus various allowances that can raise the take-home packet to the Sh1 million range.
One of this allowances is the mileage claim, which an amendment to the Income Tax Act will render tax-free for those travelling for official duties, based on a standard rate published by the Automobile Association of Kenya (AA).
“The proposed change reaffirms the practice of excluding mileage and travel reimbursements from employment tax, and also reinforces the limits within which such benefits may be extended to,” tax experts at consultancy firm KPMG Kenya said in their analysis of the Finance Bill.
This relief will effectively reduce the exposure of MPs to the top income tax rates—by reducing the proportion of their pay that attracts top rate income tax.
Lawmakers collectively claim millions yearly in mileage reimbursements at a rate of Sh116.63 per kilometre, via on a zoned system based on the distance covered.
A gazette notice by the Salaries and Remuneration Commission (SRC) dated July 2022 set the limit for ‘Zone 1’ at 350 kilometres from Parliament, with a maximum claim of 700 kilometres per week. This would cover areas such as Nairobi, Nakuru, Machakos and Kiambu.
In this zone, the legislators can claim a maximum of Sh353,778 per month on mileage refunds.
Zone 2 claims cover a minimum distance of 351 kilometres, with the return journey based on actual distance travelled. The maximum claimable amount is also based on the actual distance.
President Ruto, while addressing the inaugural joint sitting of the 13th Parliament last September, urged MPs to take measures to protect the CDF by aligning it with the Constitution, and establish an oversight kitty for Senators to police cash transfers to counties.
This intervention by the President underlined the importance of the fund to the legislators, who had a week earlier been told by the Treasury that it would not allocate money to the fund in line with the Supreme Court ruling. Currently, the law sets aside 2.5 percent of the total revenue raised nationally to be shared among the constituencies.
One of the two Bills being fronted in the House is the Constitution of Kenya (Amendment) Bill, 2022, which seeks to entrench the NG-CDF in the Constitution. In November, the MPs threatened to block government business in the House if there was continued delay in releasing CDF funds, prompting the Treasury to propose a staggered release of the funds, subject to approval by the Attorney-General.
