How Ruto’s new tax proposals will affect fuel, M-Pesa charges, and salaries
New tax proposals to hit fuel, M-Pesa charges, and salaries in a bid by Ruto's administration to raise an additional Sh364 billion
New tax proposals to hit fuel, M-Pesa charges, and salaries in a bid by Ruto’s administration to raise an additional Sh364 billion.
The National Treasury is targeting high earners, M-Pesa users, and fuel consumers in an effort to collect an additional Sh364 billion in taxes for the 2023 budget, which will result in further wage reductions for workers already suffering from inflation.
For workers earning more than Sh600,000, the top income tax rate would increase to 35 percent from 30 percent, and they will pay at least an additional Sh5,000 per month in taxes.
In order to prepare for a review of M-Pesa transfer costs, President William Ruto’s administration has recommended raising the excise duty on mobile money transfer fees from 12 percent to 15 percent.
The Treasury in the newly published Finance Bill also deleted sections of the law that allowed the halving of value-added tax (VAT) on all petroleum products to eight percent.
This means that the cost of petrol and diesel could increase by Sh13.20 and Sh10.50 a litre based on the current prices.
This will pile more pressure on households as the cost of energy and transport has a significant weight in the basket of goods and services that is used to measure inflation in the country.
Inflation wiped out the 5.6 percent salary increase offered to private sector workers last year.
The workers’ payslips will shrink further as the Treasury seeks to deduct three percent of all employees’ basic salaries towards a National Housing Development Fund to support ownership of affordable homes.
This comes on top of increased monthly contributions to the National Social Security Fund (NSSF) and the National Hospital Insurance Fund (NHIF), further shrinking the worker’s take-home pay.
The monthly NSSF contributions increased more than four-fold to Sh1,080 a month from Sh200 in February while NHIF members will pay 2.75 percent of their salaries from the current maximum of Sh1,700.
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The number of Kenyans earning more than Sh500,000 a month is small given the majority of those in formal employment or over 87 percent of them earn less than Sh100,000 per month.
President Ruto has revived a proposal to impose higher taxes on Kenya’s super-rich and high-income earners, endorsing the introduction of a wealth tax that failed to sail through Parliament over the past four years.
The idea is the latest in a long list of efforts to raise taxes on the super-rich as the new administration seeks to cut reliance on loans to fund the national budget and finance the President’s pro-poor plans amid the burgeoning public debt.
The Treasury has been under pressure from the International Monetary Fund (IMF) to double the value-added tax (VAT) on all petroleum products in an effort to cut the budget deficit and tame public borrowing.
Former President Kenyatta was in 2018 forced to halve VAT on fuel to eight percent after the introduction of the full tax prompted protests from motorists and business lobbies.
The tax was originally included in a law passed in 2013, but was postponed several times, amid complaints about its impact.
Now, the IMF is asking Kenya to consider the fuel tax at a time when the multilateral lender is expected to play a role in shaping policy that would require the government to implement tough conditions across many sectors.
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