Ruto’s proposed finance bill to worsen the cost of living situation, Tax experts warn
Tax experts warn the cost of living situation in the country to worsen over Ruto's proposals in the controversial finance bill 2023
Tax experts warn the cost of living situation in the country to worsen over Ruto’s proposals in the controversial finance bill 2023.
Tax specialists have issued a warning that President William Ruto’s proposed taxation plan for 2023–2024 will make Kenyans’ cost of living conditions worse.
The proposal to increase the Value Added Tax (VAT) on petroleum products from 8% to 16% will have an impact on the economy as a whole, according to PriceWaterhouseCoopers (PWC) analysts.
“VAT on petroleum has always been the intention of the government. These taxes tend to be regressive, it doesn’t matter whether you are a boda boda rider or somebody using petroleum products for manufacturing. You can expect the cost of living to increase because of this change,” said Mr. Job Kabochi, Partner, Indirect Tax Services.
The tax experts warned Parliament against enacting the Finance Bill 2023 in its current form during a media briefing to explain the implications of its proposals. They underlined that some of Bill’s ideas are likely to have unfavorable effects.
For instance, Mr. Kabochi pointed out that a projected increase in excise duty on fees imposed for money transfers from 12 to 15% is likely to encourage Kenyans to move money through alternative systems if they feel that mobile money wallet rates are too high.
“When you think about why some of these solutions were created in the first place, it was about financial inclusion. Have we sorted the challenge we had about the unbanked and their inclusion in the financial services landscape?
The experts also faulted a proposed tax payment time reduction on some taxes to 24 hours, which they argue could lead to many tax disputes due to compliance difficulties. Among taxes to be paid within 24 hours is rental income tax, which has been brought down from 10 to 7.5 percent.
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“This is obviously highly impractical because what they are trying to do here is introduce real-time taxes. Real-time taxes cannot just be applied to any tax especially taxes being done on a manual basis. This is going to be very messy not just on rental but any tax you pay on resident taxes.
Half our jobs is going to be working for KRA because all you are doing is filling forms and remitting taxes on a daily basis; it’s KRA putting the burden of collection on the taxpayer,” said Mr. Titus Mukora, Partner, Tax & Transfer Pricing.
Ms. Shreya Shah, a senior tax manager, also noted a likelihood of double taxation in the proposed National Housing Development Fund’s 3 percent cut on basic salary, while also warning that the tax is likely to discourage formal employment.
“The introduction of these deductions will further hit the takehome and will be a burden to employers with an increased cost of employment which may lead to the potential reduction in employment opportunities,” Ms she said.
Among actions they argue may not yield more revenues are the raise of turnover tax from 1 to 3 percent, the 3 percent digital asset tax that they say will face compliance issues from multinationals, and the proposed 15 percent tax on digital content creators.
They said proposed taxes in the Finance Bill, together with other proposed deductions outside the Finance Bill add to employees’ burden, even as inflation continues to eat into their purchasing power.
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