Mr Rotich has published a legal notice indicating that he intends to use the Provisional Collection of Taxes and Duties Act to bring into force parts of the Finance Bill 2018 that relate to taxes and duties.
Treasury Cabinet Secretary Henry Rotich has used an alternative law to bring into effect the raft of tax changes he has proposed in the budget, pending Parliament’s approval of the Finance Bill.
Mr Rotich has published a legal notice indicating that he intends to use the Provisional Collection of Taxes and Duties Act to bring into force parts of the Finance Bill 2018 that relate to taxes and duties.
“The Cabinet Secretary for the National Treasury and Planning orders that all the provisions of the Finance Bill relating to taxes or duties shall have effect as though the Bill were passed into law. This order shall come into effect on June 15, 2018,” says Mr Rotich in the legal notice dated June 14.
The legal notice means Kenyans will from Monday begin to pay higher excise taxes on mobile money transfers, kerosene, bottled water and imports of private vehicles with engine capacities above 2500cc.
These are the new tax measures in the Finance Bill that came with an effective date of July 1.
Publication of the notice enables the Treasury to collect the tax billions it would have missed out on as it awaits parliamentary approval of the tax measures, given that taxes cannot be charged retrospectively in the event that the Finance Bill is passed after the effective date of a particular levy.
The Treasury is allowed to collect the taxes under the provisional arrangement for up to six months — until January 15, 2019 — although the law allows extension of the period with Parliament’s approval.
Once the Finance Bill is passed and signed into law, the legal notice ceases to have effect, and any changes applicable from the newly enacted law apply. The notice also becomes voided when the National Assembly rejects any sections of the Finance Bill.
Tax experts said the Treasury’s publication of the notice is meant to cover the taxman against possible delay in passing the Finance Bill. Early start to the collection of new taxes improves the taxman’s chances of hitting the revenue target in the next fiscal year starting July 1.
The biggest amount is likely to come from the increase in excise tax on mobile money transactions from 10 to 12 per cent. Kenyans, for instance, transacted Sh3.7 trillion through their phones in the 12 months to March 2018, meaning that the taxman could collect billions of shillings from the two percentage points increase.
Beginning Sunday, excise tax on kerosene will rise from Sh7.21 per litre to Sh10.31, fixing it at par with diesel.
The measure is expected to hit millions of low-income households that rely on the commodity for lighting and cooking hardest. Sugar confectionery and chocolate bars will also start attracting excise duty at the rate of Sh20 per kilogramme.
Other tax changes coming into effect on July 1 are the increase in excise duty on large cars from 20 to 30 per cent, the 20 per cent demurrage charges on foreign ships and capital gains tax of five per cent on property transfers by insurance firms.
“It is a temporary measure to ensure that they collect the tax as the Finance Bill is being debated, hedging against any delays given that we have seen Finance Bills stay for up to six months before being passed,” said Deloitte tax leader for East Africa Fred Omondi.
“Taxpayers will now follow the effective dates of various levies as published in the Finance Bill, and given that the Act makes the Finance Bill provisions law in the interim period, any taxes paid in this period, even if they are struck out by Parliament in the Bill, will not be refundable.”
Other tax changes in the Finance Bill have an effective date of January 1, 2019, including the Housing Development Fund Levy of 0.5 per cent to be charged on workers’ salaries.
The presumptive tax of 15 per cent of the single business permit fee issued by a county government also comes into effect in January, replacing the turnover tax of Sh5 million currently charged on businesses with annual revenue of less than Sh5 million.
It is, however, expected that the Finance Bill will have been passed before the turn of the year. Observers expect a prolonged debate on some sections of the Bill such as the proposed repeal of the law capping bank interest rates.
Legal challenges on some provisions in the Bill may also delay full adoption.
Yesterday, five confectionery manufacturers moved to court opposing the proposed excise duty on their products, arguing that the rule does not make a distinction between locally manufactured goods and imported products, and that there has been no public participation before the July 1 effective date of the law.
