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Economy

Alcohol, betting, loans to cost more in Rotich budget - VIDEO

Consumers will pay more for alcohol, cigarettes and betting after Treasury Secretary Henry Rotich turned to sin taxes for additional revenue in his 2019 Budget plan.

Borrowers of bank loans could also be big losers if Parliament agrees with Mr Rotich’s fresh attempt to repeal the interest rates cap law, which has kept the cost of credit relatively low in the past three years.

In a raft of new tax measures intended to finance his Sh3.1 trillion Budget, Mr Rotich increased by 15 percent the excise duty charged on cigarettes and alcoholic beverages, citing the fall in excise revenue as a percentage of GDP from three percent in 2004 to two percent in the 2017/18 fiscal year.

He also hit gamblers with a 10 percent excise tax on the amount they bet, a move that will automatically give the government a sizeable share of the billions of shillings that Kenyans have been staking in sports betting. The government previously targeted winnings when taxing betting firms.

The tax increases, the Treasury CS said, are intended to net the ex-chequer Sh37 billion in additional revenue.

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Mr Rotich added that the excise tax on gamblers is also a push against the negative social effects of betting on young and vulnerable members of society, effectively taxing and regulating the craze at the same time.

"A 750ml bottle of wine will have an excise duty of Sh136 which is Sh18 more from the current rate; the duty of a bottle of whisky will go up by Sh24 to Sh182 for a 750ml bottle. The excise duty on a packet of 20 cigarettes will increase by Sh8 to Sh61 per packet," said Mr Rotich in his Budget speech to the National Assembly.

In addition to the 15 percent increase that he announced Thursday, the excise duty on these products (and all others that are charged specific excise rates) will increase again automatically when the inflation adjustment kicks in from July.

The inflation adjustment rate stood at between four and 5.2 percent yesterday, and is likely to closely track this range in July given that the average inflation in the 11 months to May 2019 stood at 5.1 percent.

Mr Rotich is seeking to raise Sh242.2 billion in excise taxes in the 2019/2020 fiscal year, compared to a target of Sh210.1 billion in the current fiscal year. In total, the Treasury expects to raise Sh1.88 trillion in taxes for the year.

Tax experts say that while the higher tax rates will help to boost the Treasury’s kitty, administrative measures are also necessary in closing the Budget financing gap.



BD GRAPHIC

BD GRAPHIC

"It is a significant increase, but the government has to deal with loopholes such as tax evasion if it is to achieve its target… this has been one of the main reasons why it has been unable to achieve its tax targets in the past," said Clive Akora, a tax partner at KPMG Kenya.

Mr Rotich also renewed his effort to do away with the rate cap on customer loans by proposing a repeal of Section 33B of the Banking (Amendment) Act 2016 that limits the lending rate at four percentage points above the Central Bank Rate. If repealed, the move would be a big win for banks, but a hit on borrowers whose cost of borrowing would shoot up immediately. However, it could also entice banks into lending to individuals and businesses.

Last year, a similar proposal was turned down by Parliament, which however allowed a partial amendment that did away with the deposit rate floor of 70 percent of CBR.

"It is likely to still be a difficult conversation at the National Assembly, and will need a lot of lobbying to go through," said Mr Akora.

Other measures meant to widen the tax base include the introduction of a withholding tax on security services, cleaning and fumigation services, outside catering services, transport of goods excluding air transport services, sales promotions and marketing as well as advertising services.

The Budget also produced some winners, most notably small businesses whose pending payments from government -- estimated at Sh10.9 billion -- will be made by the end of the month.

Consolidated shipments for traders, which have been facing inspection delays at the port of entry, will also be pre-inspected at the point of origin and will not be subjected to further inspection locally unless there is prior intelligence on non-compliance.

Businesses seeking VAT refunds will also get a cashflow boost, with Mr Rotich proposing to slash the VAT Withholding Tax from six to two percent to reduce the build-up of VAT refunds.

Furniture manufacturers also earned additional protection from imports of finished furniture products, with Mr Rotich removing the 10 percent import duty on raw timber while retaining the ad valorem 25 percent excise on finished products.

Investors in plastic recycling ventures were also given a tax boost, with Mr Rotich exempting from VAT all services offered to plastic recycling plants and supply of machinery and equipment used in the construction of these plants.

He is also proposing to lower corporation tax to 15 percent for the first five years for any investor setting up a plastic recycling plant.

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