State officers are set to earn tax-free benefits including tax allowances on asset purchases such as motor vehicles and homes.
This is under new proposals contained in the 2023 Finance Bill which seeks to exempt reimbursement to public officers in the course of performing their duties by deeming them as non-gains of profits.
“Any amount paid or granted to a public officer to reimburse an expenditure incurred for the purpose of performing official duties, notwithstanding the ownership or control of any assets purchased,” reads the proposed amendment to the Income Tax Act.
Presently, only the first Sh2,000 in reimbursements to employees per day are usually exempted from taxes.
Tax experts have deemed the new proposal to be a loophole which is subject to abuse by civil servants with the absence of strict controls on what the expenditures comprise.
“It’s like handing out an open cheque. This amendment is subject to abuse as State officers can buy a vehicle with no oversight on the government’s part as to whether the asset is only being used for the furtherance of the officer’s duties,” Stephen Waweru, a Senior Tax Manager at KPMG told the Business Daily.
Members of Parliament are expected to be some of the biggest beneficiaries of the tweak in law should the proposal to waive taxes on the reimbursements sail through the National Assembly.
The change would enable MPs to circumvent current provisions where accrued allowances are subject to taxation.
The adoption of the proposal would also come at a time when the legislators have pushed for the reinstatement of lost allowances including car grants.
In September last year, National Assembly speaker Moses Wetangula pledged to push for the return of lost perks, among them car grants that were abolished by the Salaries and Remuneration Commission (SRC) in July.
In cancelling the privileges, SRC Chairperson Lyn Mengich maintained the move aligned with the commission’s commitment to equity and fairness which translates to equal pay for equal labour.
The decision by the crafters of the Finance Bill to limit the tax benefits to public officers could set off a new battlefront in court as the allowance is deemed unequal.
“This proposal is quite mischievous as a public officer can get any amount of per diem and they don’t need to account for it. This would be very discriminatory as employees in the private sector would not get to enjoy the same benefits,” noted James Mulili, a Tax Director at PKF Taxation Services Limited.