Rotich seeks to raise Sh130bn from new taxes

President Uhuru Kenyatta is banking on Parliament’s passing of his painful tax proposals to raise the Sh130 billion he needs to keep his spending plans on track while protecting the integrity of the country’s finances.

Treasury secretary Henry Rotich Wednesday told the National Assembly’s Finance and National Planning Committee that he intends to raise Sh17.5 billion from eight per cent VAT on petroleum products, Sh9.8 billion from the “kerosene adulteration” tax while imposition of Sh20 per kilogramme of sugar confectionery, including white chocolate will raise Sh473 million.

The committee further heard that introduction of 1.5 per cent levy for National Housing Development Fund will generate about Sh57 billion a year.

Initial calculations by the Parliamentary Budget Office (PBO), which advises MPs on budget and fiscal matters, shows the application of 1.5 per cent of gross basic salaries of workers will realise a similar amount.

Under the Housing Development Fund plan, an employer and employee are separately required to contribute 1.5 per cent of the monthly basic salary so long as the sum of the employer and the employee contributions does not exceed Sh5,000.

“The wage bill for the government is about Sh650 billion and we will require an annual allocation of about Sh10 billion, being the 1.5 per cent of the employer’s contribution to finance the Housing Fund, Mr Rotich said, adding that the impact on government will be about Sh5 billion depending on the date the regulations are gazetted.

“We will have to cater for the second half of the financial year assuming that the fund comes into effect on January 1, 2019. We will then bring a supplementary budget to factor in this,” he said during the committee session to scrutinise the President’s Memo on Finance Bill, 2018.

Mr Rotich said the proposed 12 per cent excise duty on fees charged for mobile money transfer services, the 15 per cent excise duty on telephone and internet data services and the 20 per cent duty on fees charged for money transfer services by banks, money transfer agencies and other financial service providers will realise Sh20.2 billion.

The minister said the proposed reduction of gaming tax from the current 35 per cent to 15 per cent and introduction of a 20 per cent tax on winnings is expected to raise Sh25 billion up from the current Sh8.7 billion.

He said the reduction of the tax on gaming to 15 per cent and introduction of 20 per cent tax on winnings should expand the tax net to cover taxation on betting, gaming, lotteries and prize competitions thereby enhancing equity and fairness in taxation.

Mr Kenyatta has, in his memorandum to parliament, proposed to halve the controversial 16 per cent VAT on petroleum products that kicked in on September 1 – a proposal that can only be overturned by a vote supported by not less than 233 MPs.

The controversial tax, which has significantly increased transport costs and increase inflation, was initially expected to generate an extra Sh35 billion in the current fiscal year ending June 2019.

“We anticipate a one to two per cent impact on inflation, which in August stood at four per cent,” Mr Rotich said, adding that the real impact will be known when the September figures are released.

Caxton Masudi, the Kenya Revenue Authority (KRA) head of domestic taxes, said the taxman expects positive revenue outcomes with new VAT on petroleum.

“The eight per cent VAT will be charged on importers, marketers and retailers and at any stage it will attract the eight per cent VAT. We have taken care of all costs incurred from importation to sale to consumers,” he said. Kenyans were yesterday still looking up to their MPs to avert the imposition of value added tax (VAT) on petroleum products, and the array of taxes on essential goods and services, but that is unlikely to happen with the closing of ranks among government and opposition benches in support of the measures.

If MPs pass Mr Kenyatta’s proposals, mobile money transfer charges will now attract excise tax at the rate of 12 per cent, while mobile calls and data will be levied at 15 per cent from the current 10 per cent in a move that could reverse the recent decline in mobile call costs.

Mr Kenyatta is seeking to plug a huge financing obligations in this year’s budget, including the Sh870 billion that must be spent on debt servicing to avoid default.