Finance Bill 2024 bad for the economy

DN Finance Bill 0406

Demonstrators outside the National Assembly on June 04, 2024, over the Finance Bill 2024. 

The Finance Bill 2024 will change the Kenyan economic and business environment way beyond recognition.

As you read the Bill, you find an avalanche of ill-conceived amendments that have introduced what I can only describe as legal litter in our fiscal laws.

Never in the history of changes and amendments to our fiscal laws in this country has a Finance Bill been greeted with such widespread lamentations and outrage by such a broad spectrum of organised industry, professional associations and independent voices.

The way I see it, this country is standing on the escalator of anarchy and chaos.

The reason I insist that what we are witnessing is anarchy is the display of arrogance of power by both parliament and the executive manifested by the fact that the latter seems bent on introducing multiple changes to our fiscal laws without giving due consideration to suggestions and genuine criticisms by businesses and other wealth-creating segments of our society.

Today, genuine and legitimate criticism and lamentations are impulsively waved aside and dismissed as rantings of vested interests.

Beer maker, Kenya Breweries, is lamenting that because of the perennial tinkering with excise duties, beer prices in Kenya are three times higher than in Uganda and twice higher than in Tanzania.

In the case of spirits, the brewer has lamented that the Finance Bill will introduce a regime where it will have to pay excise duty on both inputs and the final product. The brewer is lamenting that the proposed excise duty regime will make legitimate alcohol unaffordable and suggested that the changes be introduced incrementally to allow the company to plan.

It has also complained that the new proposal in the Bill that requires it to remit excise duties to KRA within five days will badly hurt its cash flows.

The lamentations of the edible oil manufacturers have been louder. The proposed 25 percent duty on vegetable oils will cause the prices of edible oils to skyrocket.

That when you add the proposal to impose excise duty on raw materials, the Finance Bill will cause the cost of the finished product to go up by 50 percent rendering the local industry unable to compete within both Comesa and the regional bloc.

That the only option open for them is to relocate their operations to either Uganda, Tanzania or Rwanda.

The cement industry is howling that the proposals in the Finance Bill will administer euthanasia to the industry. The excise duty rate the government is proposing to impose on coal plus the new eco- tax will cause the taxes and duties to be more expensive than the coal itself.

The financial services sector is also grieving. That the plan to impose VAT on financial services will have adverse effects on the cost of borrowing to the manufacturing sector because the sector does not have the means to offset the charges.

That the removal of banking services from the VAT-exempt list will impact loans and critical banking services that are already at historic highs.

Similar lamentations have been heard from the pharmaceutical sector, paint manufacturers, makers of pesticides and the telecommunications sector.

Yet the fact that both parliament and the government appear not to be in a listening mood is just part of the problem.

This economy will not experience a sustainable turnaround until we inject the ‘S’ factor into our fiscal laws- stable, simple and sane.

The arbitrariness with which the proposals for removing exemptions and zero ratings in this year’s Finance Bill speak volumes to the whimsical and capricious manner in which amendments to our fiscal laws are implemented.

If you invest in a business on the basis of tax holidays or exemptions introduced in this year’s Finance Bill, can you be sure that the incentive regime that gave you the incentive to invest will continue to be the law when actual operations of that business commence five years later? How stable are our fiscal laws?

Here is an example. In July 2022, the government granted duty remission for approved manufacturers under the EAC remission scheme.

This encouraged investors including entities such as the brand, M-Kopa to invest in the local assembly of mobile phones.

In July 2023, the government decided to enhance the incentives through zero rating on locally assembled smartphones.

Today, the Finance Bill is proposing not only to reverse the zero-rating but to introduce VAT on locally assembled phones.

I don’t see the difference between a tax-evading citizen and a promise-evading government.

The writer is a former managing editor of The EastAfrican.

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