Parliament’s rejection of nearly all new tax proposals by the Treasury for the current financial year has turned the focus on President Uhuru Kenyatta whose final signature is needed to give amendments to the Finance Bill, 2018 legal force.
MPs on Wednesday and Thursday dealt multiple blows to the Treasury’s plans to collect additional billions of shillings in taxes through the introduction of a 16 per cent value added tax (VAT) on fuel, levying a “Robin Hood” tax on high value transactions and raising excise tax on mobile money transfers.
The amended Bill, if signed into law, means that the Treasury will be forced back to the drawing board to find ways of financing its Sh2.6 trillion 2018/19 budget.
Wednesday evening’s shooting down of 16 per cent tax on petroleum was perhaps the single-biggest blow that in one stroke denied the Treasury an estimated Sh71 billion. Legislators Thursday they voted unanimously to strike out two provisions of the Finance Bill, through which the Treasury proposed a 0.05 per cent tax on transactions above Sh500,000 as well as the 10 per cent levy on mobile money transfers.
Cash collected from the levy was to go towards funding universal health, one of President Kenyatta’s Big Four agenda through which the State is seeking to provide medical cover for the elderly and the poor, along with financing of other vital social safety nets. Stanbic Bank East Africa economist Jibran Qureishi said the rejection of VAT on fuel threw open the question of how discussions with the IMF would now proceed.
“On the IMF, with the VAT on fuel being postponed, with most of the tax measures not approved, this means the fiscal deficit is likely to remain higher than projected,” Qureishi told Reuters.
“The odds of the (IMF) facility being retained are quite slim, but we have to see what will happen.” The Finance Bill, which sailed through the third reading and final stage of parliamentary debate, now awaits President Kenyatta’s signature to become law.
The decision by MPs to throw out 16 per cent VAT on petroleum products, the deletion of the “Robin Hood” tax and the scraping of a two percentage tax increase on mobile money transfers raises fears that Mr Kenyatta may refuse to assent to the Bill and fire it back to the House with a memorandum for reconsideration.
Treasury Secretary Henry Rotich announced the excise duty on June 14 in his budget speech for the 2018/2019 financial year. The new tax requires any Kenyan who withdraws any amounts of Sh500,000 or more transferred through banks or other financial institutions to pay 0.05 per cent of the value of the transaction.
“Excise duty on money transferred by banks, money transfer agencies and other financial service providers shall be 0.05 per cent of the amount transferred in case of money transfer of five hundred thousand shillings or more,” the annulled section 31(6) of the Finance Bill stated. The High Court had earlier suspended implementation of the 0.05 per cent tax, saying its implementation is an important issue that could not be left to the guesswork of individual banks.
The Kenya Bankers Association (KBA) had moved to court seeking to suspend implementation of the tax, arguing that the "bank transfer" was vague and had not been defined by the Treasury.
Thursday MPs said the “Robin Hood” tax threshold of Sh500,000 is too low and would affect millions of bank transactions.
“We are opening a Pandora’s box and tomorrow they will tax salaries that we sent to CDF employees in our constituencies,” said Kiminini MP Chris Wamalwa.
He said the threshold for taxation of 0.05 excise duty should have been set at Sh1 million and not Sh500,000. The MPs rejected amendments by Finance and National Planning committee chairman Joseph Limo who sought to exempt an application of the 0.05 tax on transfers of taxes to or tax refunds from the KRA, KRA collections transfers to Central Bank of Kenya, transfers by or to the national government, county government or CBK, transfers relating to sale or purchase of shares at Nairobi Securities Exchange by banks or financial service providers on behalf of customers, transfer between accounts belonging to the same person and any other category of money transfer that the Cabinet Secretary may specify through a gazette notice.
Dagoreti South MP John Kiarie wanted duty on mobile money transfers scrapped. “These amendments exclude mobile money transfers and the tax will hit users of M-Pesa and Airtel Money thereby negating the very principle of “Robin Hood” tax. Those who transact through mobile money are poor households and we must delete the provision in the Bill,” Mr Kiarie said.