The government is keen to return some of the ‘progressive’ provisions contained in the rejected Finance Bill 2024, including the extension of the tax amnesty programme and clauses that sought to reduce tax expenditures, according to the incoming National Treasury Cabinet Secretary John Mbadi.
Speaking on Monday during the handover ceremony, Mr Mbadi ruled out the possibility of re-introducing the Finance Bill 2024, which President William Ruto refused to assent to following violent protests against the proposed tax law.
But Mbadi, who is taking over from Prof Njuguna Ndung’u, cited the need to reduce tax expenditures and the tax amnesty program as some of the provisions in the condemned proposed law which would be re-introduced through other means.
“I will just mention those two (reducing tax expenditures and extension of tax amnesty). But I know our team around here is working on some of those proposals that were in the Finance Bill 2024 which we can now put together and see how to take them back to Parliament, not as Finance Bill but as other proposals,” said Mbadi.
Mr Mbadi, who promised to always undertake extensive public participation exercises before introducing new policies, said re-introducing the Finance Bill 2024 in its entirety will be “an abuse of the people of Kenya.”
However, he noted that the proposed law had some progressive provisions that needed to be returned if the Treasury was to address some of its fiscal problems, chief among which is increased tax collection.
Part of the changes in the Finance Bill included extending the amnesty programme which was to expire by the end of June to March 2025.
The program collected Sh43.9 billion after 2,617,111 taxpayers were granted amnesty in the Financial Year ending June 2024.
The Finance Bill 2024 also sought to reduce the government’s tax expenditures-- including tax refunds of items zero-rated from the 16 percent value-added tax (VAT).
For example, President William Ruto’s government sought to move VAT on bread from the zero-rated schedule to the standard 16 percent, a proposal that turned out to be unpopular among Kenyans.
While backing the continued subsidy of critical items, Mr Mbadi wants most of them to be moved from the zero-rated schedule to the exempt schedule which would then deny businesses from claiming tax refunds on inputs.
Tax-exempt items are more expensive than zero-rated items as firms can't claim the input taxes and thus pass on the expense to the consumers.
Mbadi, who was a nominated MP for the Orange Democratic Movement (ODM), insisted that most of businesses do not pass on the benefit to the consumer anyway, which means it is only businesses that benefit.
Mr Mbadi is inheriting a cash-strained Exchequer that is confronted by high debt payments amidst low tax revenue.
Prof Njuguna said in the last 22 months the National Treasury has struggled to sustain stability in the economy due to numerous shocks including drought which he said had had devastating consequences on inequality.
Due to these shocks, including exchange rate fluctuations, the government became the main growth driver, with the private sector being crowded out.
“Debt levels and burden cannot be sustained with the current revenues,” added Njuguna, who also singled out the need to reduce tax expenditures to create some fiscal room.
Increased tax revenue in the Finance Bill 2024 was aimed at narrowing the government’s budget deficit, thus reducing the country’s debt vulnerabilities which has seen the country’s risk of debt distress rise high from moderate, according to a joint debt sustainability analysis by the International Monetary Fund (IMF) and the World Bank.
Mr Mbadi said the idea is for the critical items to be moved from the zero-rated schedule to the exempt schedule, a move that will help bring down tax expenditures, especially VAT refunds most of which the new Finance boss said were “fictitious.”
The law would not allow for the re-introduction of the Finance Bill 2024 until after six months after its rejection.
But the government could introduce those 'progressive' clauses at the earliest time, said Churchill Ogutu, an economist at IC Asset Managers (Mauritius).
"Or, for now, [they could] introduce some 'progressive' tax proposals that were not in the Finance Bill via Tax Law Amendment Bill," added Ogutu.
