The Valued Added Tax (VAT) Bill could be headed for major amendments that could claw back the majority of zero-rating and exemptions from the old law.
Thursday, the Parliamentary Committee for Finance agreed with recommendations made by Kenya Airways and the Kenya Association of Manufacturers (KAM) about the need to revert to the old provisions that reduced their tax obligations.
The previous day MPs entertained similar requests from dairy processors.
“We will reinstate the exemption. You don’t kill the goose that lays the golden egg. The presentation will be given due attention,” said Mr Chris Okemo, chairman of the committee.
While KAM argued on the need to reduce the cost of business and make Kenya products competitive by zero-rating them, Kenya Airways pointed out that VAT would cost the airline up to Sh152 billion in the next nine years as the company expands.
The International Monetary Fund (IMF), which has lent Kenya $760 million with the understanding the country carries out a number of reforms, is keen to have the VAT Bill passed, not only to ease the tax administration but also, as a way to save more than Sh40 billion lost annually through zero-rating and exemptions.
IMF Country Representative Ragnar Gudmundsson told the Business Daily that taxing consumption through VAT and expanding direct cash transfer to the poorest members of society was sensible — the same position held by the Treasury.
“Revenue mobilisation efforts are essential to finance development expenditure and programmes in favour of the poor and we believe that taxing the consumption of the well-off through the VAT, while expanding direct cash transfers to the poorest makes good sense,” said Mr Gudmundsson.
He further said: “It may be worth considering exempting from VAT in the transition period if this effectively contributes to food security and helps ensure that the Bill is passed. But that decision ultimately rests with the representatives of the Kenyan people.”
Finance Minister Njeru Githae recently said more VAT would help tax the high consumption of the rich and the middle class and also raise cash to expand the direct cash transfers programme to the poorest.
KQ’s Group Finance Director Alex Mbugua told the committee that airlines in other parts of the world did not pay VAT on aircraft purchase and leasing and Kenya would be the first to introduce such a tax.
“Our request [is] reinstate exemption from VAT on purchase and lease of aircraft, spares and accessories,” said Mr Mbugua when he made the presentation to the MPs.
Mr Mbugua said the proposals had been made to the Treasury at the beginning of this year but they had been ignored when the Bill was revised.
KAM’s Head of Policy, Research and Regulatory Affairs Walter Kamau told the committee that KRA needed to make only scheduled meetings to companies as it tended to take too much of management time through frequent visits.
He added there was no need for KRA to demand original documents relating to tax payment when certified copies could be offered and the originals retained by the taxpayer.