President Uhuru Kenyatta holds the key to the enforcement of new taxes that could make bank loans, Internet access and mobile phone calls costlier from tomorrow.
The President has the option to back or reject the new taxes that MPs introduced in the government-backed Finance Bill after Parliament forwarded the Bill to State House for approval.
MPs increased excise duty on airtime and data from 15 percent to 20 percent, which will see the Treasury raise at least Sh8 billion from Safaricom #ticker:SCOM, Airtel and Telkom Kenya.
This proposal was not in the Finance Bill and it remains to be seen whether the President will back the airtime tax despite the levy missing from the Treasury’s plans.
The 2021-22 financial year’s budget is expected to cement the legacy of Mr Kenyatta’s 10 years in office in a tough economic setting clouded with depressed corporate and household earnings amid uncertainties arising from the Covid-19 pandemic.
Parliament rejected the Treasury’s proposal to change the way tax on bread is calculated in a shift that would have seen bakers stopped from seeking refunds from raw materials such as electricity that attract VAT.
This could have led to an increase in bread prices and pushed it out of reach of a majority of households that are grappling with Covid-19 economic hardships.
But MPs backed the Treasury’s bid to reintroduce the 16 percent VAT on cooking gas and a 20 percent excise tax on the fees and commissions earned on loans.
This means households will from tomorrow pay at least Sh350 more for the 13-kilogramme cooking gas, adding to the pain of costly energy such as petrol and electricity.
The excise duty on bank loan fees will see banks pay the taxman more than Sh7 billion annually, which risks making credit costly for homes and businesses as lenders transfer the burden to borrowers.
The approval by Parliament followed its review of the Finance Bill, which contains taxation measures for the new financial year starting July.
This now shifts the focus on President Kenyatta, whose final signature is needed to give amendments to the Finance Bill, 2021 legal force.
The Treasury is targeting about Sh2.04 trillion in total revenue compared with Sh1.83 trillion estimates for the current year ending this month, according to the Budget and Appropriations Committee report.
Ordinary revenue streams for the Treasury – comprising taxes and non-tax streams such as court fines, charges for use of government services, rent, and forfeitures — are expected to hit Sh1.78 trillion, or 87.10 percent of the revenue projections.
Safaricom on Tuesday warned that it would increase airtime and Internet charges if the President backs the MPs’ proposal to raise excise duty by five percentage points.
“This being a consumption tax, the burden, unfortunately, has to be absorbed by customers,” Peter Ndegwa, the Safaricom CEO, said.
“Our plea to the government is to rethink this tax increase given the current economic environment. Mobile services have come to support a majority of people who have been negatively impacted by the Covid-19 pandemic relying on mobile services to work from home, learn or earn a living. The increase will thus only intensify the negative impact on our people.”
In 2018, the government increased excise duty on mobile phone services from 10 percent to 15 percent.
This prompted Safaricom to raise the cost of calls by 30 cents per minute, and SMS by 10 cents while rival, Zuku, increased the costs for subscribers who use the 10mbps package to Sh3,999 up from Sh3,500.
The lawmakers also rejected a plea from bankers to exclude fees and commissions earned on loans from the 20 percent excise duty.
The Kenya Bankers Association (KBA), a lobby for the lenders, had argued that imposition of excise duty on fees and commissions would raise the cost of borrowing and hurt access to credit at a time businesses and households were looking for cash to recover from the knocks of the Covid-19 pandemic.
“The committee rejected the proposal as it will negate the intended objective of reducing the tax expenditure. This will also erode the tax base,” said the National Assembly Committee on Finance and National Planning.
Parliament agreed to cut the 20 percent tax on winnings from gambling to 7.5 percent, a boost to gamblers and blow to the Treasury.
The MPs also lowered the Treasury’s proposal to reintroduce excise duty on betting to 7.5 percent from 20 percent that the State had published at end of April through the Finance Bill 2021. The Treasury had sought to reintroduce the 20 percent tax on betting stakes through the Finance Bill 2021, as it eyed billions of shillings from punters annually.
The 20 percent tax on betting stakes was introduced in 2019 but Parliament removed it last year through amendments to the Finance Act, 2020 following lobbying by betting firms.
Punters currently pay 20 percent on their winnings but the parliamentary committee reduced it to 7.5 percent, saying the current taxation regime for betting is too high and has put off investors.