The Finance Act, which is generally a statement of the power of taxation that ‘we the people’ donated to the State, has become a statement of misery.
The Finance Act of 2022 best captures this message. In fact, broadly, it conveys two key messages. First, the Government wants to enforce basic living by continuing to heavily tax luxury, even the most essential luxuries that gets the wheels of life to spin smoothly.
Take beauty, for example. The Treasury Cabinet Secretary has proposed to increase excise duty on beauty and cosmetic products to 15 percent. Everybody wants to look beautiful but the government says at the cost of your arm. Even love just got more expensive.
Duties on chocolate bars will go up by 15 percent. Duties on imported jewelry will rise to 15 percent from 10 percent. And if you have sweet tooth, think twice. Duties on sugar confectioneries such as candies chocolates, chewing gum and bubble gum will also rise by 10 percent.
And of course not forgetting the usual annual ritual of increasing duties on alcoholic beverages. The booming non-alcoholic beverage market is also making a permanent home in the government’s cash-cow basket.
On top of the existing taxation burden, the Treasury CS has proposed to increase excise taxes on fruit and vegetable juices by 10 percent.
Essentially, the government is driving a deterrence message on looking beautiful, expressing love in the most buoyant way, refreshing yourself and even sweetening your tooth. It appears the government just wants you to be basic; and, this is essentially stifling the feel-good aspect of the economy. But even worst affected is the telecoms sector.
The government will now tax imported SIM cards at the rate of Sh50 per card. There is now excise duty on imported (smart) cell phones at the rate of 10 percent of the excisable value.
Let’s not forget that the sector was already a cash cow for the government. Telephone and internet data services are already charged excise duty at a rate of 20 percent.
There is also excise duty on fees charged for money transfer services at the rate of 12 percent. The tax on imported smart phones will be a significant setback to smartphone penetration and the expansion of a ‘switched-on’ economy.
Remember that the smartphone industry was already reeling from the global chips shortage, which is now projected to last into 2023. The Communications Authority of Kenya estimated that there were about 26 million smartphones in Kenya in 2021, representing a 50 percent penetration.
Essentially, I see this as a setback to the eradication of feature phones. Still on technology, if you are into mobile lending applications, there will be an excise duty on fees charged by digital lenders at a rate of 20 percent.
The second message from the Finance Act of 2022 speaks to a lack of policy straight-line when it comes to taxation.
Every year, the Income Tax Act, the VAT Act and the Excise Duty Act go through several amendments that leave any serious investor with tax uncertainties.
For instance, investors in the alcoholic beverage industry may never achieve certainty on pricing because they are literally held hostage by the annual ritual of duty adjustments by the government.
Bodo is an investment analyst
Twitter: @georgebodo
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