Many Kenyans have been hit by the rising cost of living as the economy recovers slowly from the shocks of the pandemic and the conflict between Russia and Ukraine. With all industries being affected, layoffs have been rising while others have gone without salaries. Despite the situation, if the proposed Finance Bill 2023, tabled before the National Assembly in the first week of May 2023, was to be enacted into law, Kenyans are yet to see the worst.
The bill tabled by the government aims to raise taxes to raise their revenue for the coming financial year. Through the Finance Bill 2023, the government proposes to increase the excise duty on mobile money transfer services such as M-Pesa and Airtel Money from 12% to 15%. This is set to affect many Kenyans who rely heavily on mobile money. In 2022, the number of transactions on mobile phones grew by Sh1.1 trillion to stand at Sh7.9 trillion compared to Sh6.8 trillion in 2021, according to the Central Bank of Kenya (CBK).
The government also plans to increase the value-added tax (VAT) on petroleum. This is despite fuel prices rising to new levels following the impact of the Russia-Ukraine war, which saw fuel import prices rise. The bill proposes the VAT to be increased to 16% from 8%. Not only will this increase fuel prices, but it is likely to affect those who rely on kerosene. There is also to be an introduction of excise duty on sugar, adding an extra burden to those who depend on it.
When unemployment is rising among the youth, many have looked online to make a living. They are set to be affected if the bill passes. One of the proposals in the bill is the introduction of a 15% withholding tax on payments related to the monetization of digital content. Content creators will have to part with a chunk of their earnings, and thus some might be forced to drop the source of income due to having their already minimum income deducted.
Furthermore, the bill will introduce a mandatory contribution to the National Housing Development Fund (NHDF) that will see taxpayers have to contribute a percentage, which will be deducted from their salaries. According to the Treasury, employers will have to pay 3% of their employee’s monthly basic salary to the Fund while employees contribute the same percentage of their monthly salary. However, according to Njuguna Ndung’u, Treasury Cabinet Secretary, the employer and employee contributions sum shall not exceed Sh5,000 a month. This is expected to affect the disposable income of many Kenyans, which has remained the same despite a rise in the price of goods and services.
With the proposed changes expected to affect a majority of Kenyans, as the burden is pushed their way, the cost of living is expected to reach new heights. According to Edna Gitachu, PwC Associate Director, the bill will lead to a higher cost of living. “Not only is the proposed bill a one-sided proposal, but it is cumbersome to taxpayers. This is not the first time that we are seeing this proposal. A number of proposals have been rejected in the past, but they have found themselves in this new bill,” she said.
However, the proposed bill is not all bad news as it proposes some solutions. For instance, the government is looking to exempt liquefied petroleum gas (LPG) from the 8% VAT, its 2% railway development levy, and its 3.5% import declaration fee. This will see households that rely on LPG be able to save as the price of this fuel is expected to reduce sharply. Taxpayers are also to benefit from a reduction in the excise duty on airtime and data services from 15% to 20% and a reduction in the excise duty of bank charges on money transfer services t0 15% from 20%.
Those with huge tax debts will also have the opportunity to get a waiver of any accruing penalties and interest if they declare the principal tax that they have accrued up to December 31st, 2022, and pay the principal tax by June 30th, 2024. Not only is the government hoping to collect more revenue, but it is also giving a chance to those who don’t file and pay taxes, to come forward and have a clean slate.
For many, the bad may outweigh the good with the proposed bill; however, as the bill is expected to go through public participation, changes can be made to ensure it favours Kenyans while also advocating for an increase in revenue for the government. The public must make their voice heard for reservations to be made before the bill is passed into law as it is, leading to uncertainty and further slowdown in economic growth.
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