News and Analysis
November 21, 2024
Over the last week, several money-related topics have made headlines that have left Kenyans talking. The theme for most of it was taxes, taxes, and more taxes.
From the Treasury floating a proposal to eliminate personal tax relief, to the education sector being in crosshairs as six new tax proposals are unveiled to a proposal to increase VAT to 18% and the government proposing a wealth tax that is targeting car owners, it has indeed been a busy week.
As we do every Friday, here's our weekly summary of the top money news from the last seven days that could impact your money.
The Kenyan government has made a bold announcement, unveiling plans that could signal the end of personal tax relief for salaried employees in the upcoming fiscal year.
This significant proposal is a cornerstone of the government's Draft Medium-Term Revenue Strategy, encompassing the financial periods of 2024-25 and 2026-27.
Presently, salaried workers in Kenya benefit from two distinct forms of tax relief under the Pay-As-You-Earn (PAYE) system:
“With the removal of personal relief, the low-income tax earners will be cushioned in line with the adjusted tax bands by creating a zero-rate tax band,” the National Treasury says.
The Treasury has articulated that the Medium-Term Revenue Strategy's overarching aim is to rejuvenate domestic revenue, which has experienced a gradual decline over time. The funds generated through these proposed tax reforms are earmarked for financing government programs as part of the continued pursuit of Vision 2030.
Kenyans are granted an opportunity to voice their opinions on these proposed changes, with a submission deadline set for October 6, 2023, encouraging public participation in shaping the nation's fiscal policies.
“Though the tax incentives provide governments with a policy tool to influence taxpayers’ behaviour, they come at a cost in terms of forgone tax revenue. In addition, tax incentives increase the complexity of the tax system and reduce its effectiveness as an instrument to promote equity. Studies have shown that incentives may not necessarily be effective in influencing the taxpayer’s behaviour,” the Treasury said.
For the first time in Kenya’s history, the price of fuel at the pump has crossed the Ksh200 mark for super petrol, diesel and kerosene.
This follows a Thursday, September 15, review for the September-October cycle by the Energy and Petroleum Regulatory Authority (Epra) that increased the cost of the three fuels by a record Ksh17, Ksh21, and Ksh33 respectively.
In Nairobi, a litre of Super Petrol will be retailing at Ksh211.64, a litre of diesel at Ksh200.99, and a litre of kerosene will retail at Ksh202.61.
This is as compared to Ksh194.68 for a litre of petrol, Ksh179.67 for a litre of diesel and Ksh169.48 per litre of kerosene previously.
In some far flung counties, the costs are significantly higher. In Mandera for example, a litre of petrol is now retailing at Ksh226, while diesel and kerosene are going for Ksh215 and Ksh217 respectively.
Epra stated that the high pump prices were beyond the government;’s control while revealing that they also included the new 16% VAT that was introduced by the Finance Act, 2023.
The National Treasury has laid out plans for the introduction of at least six new taxes in the coming financial year, a move that could potentially create further financial challenges for households and business uncertainty as the private sector grapples with the implementation of these national tax policies.
If these Treasury proposals come to fruition, it would mark a significant shift, with education services potentially becoming subject to value-added tax (VAT).
Currently, VAT is levied at a rate of 16% on most goods and services. This means that educational institutions might find themselves obliged to comply with VAT regulations for services that are not directly related to traditional education.
Activities such as swimming lessons, taekwondo, chess, and ice skating, previously exempt from such taxation, could now fall under its purview.
“Education services in Kenya are exempt from VAT to make education accessible to all learners. However, the benefit of the exemption is not uniform across all learners due to differences in fees and services provided,” National Treasury states in the draft medium-term revenue strategy while calling for public input.
“To remove this discrimination, there is a need to impose VAT on the additional benefits. In this respect, the government will explore the introduction of VAT on services provided by schools but not directly related to education,” adds the draft strategy.
This development coincides with Kenya's ongoing transition to a new competency-based curriculum (CBC), where additional classes and extracurricular activities are frequently offered at an additional cost. The proposed taxation of such services could have far-reaching implications for both educational institutions and students alike.
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In a bid to secure additional funding for the government, the National Treasury is laying out plans for the introduction of new taxes. This move is outlined in the government's Draft Medium-term Debt Strategy for the period spanning 2024-25 and 2026-27, signalling a series of significant tax reforms on the horizon.
One of the focal points of these proposed tax changes is the alignment of Kenya's Value Added Tax (VAT) with that of the East African Community (EAC) member states. Currently, Kenya levies a 16% VAT rate, while most EAC states impose an 18% VAT rate. This harmonisation effort aims to create consistency within the regional tax framework.
Additionally, the National Treasury is revisiting the taxation of alcoholic beverages and cigarettes, reigniting discussions around excise duties. Notably, these products received a brief reprieve from additional taxation under the Finance Act of 2023. The proposed excise rate adjustments will seek to streamline taxation for filtered cigarettes, non-filtered cigarettes, and other tobacco products, while excise duties on alcoholic beverages will be linked to their alcohol content.
This marks a departure from the existing taxation structure, which considers factors such as consumer behaviour, product value, consumption volume, and alcohol content.
The Treasury is inviting Kenyans to share their suggestions regarding the proposals until October 6, 2023.
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The National Treasury is charting a new course by proposing the introduction of a Motor Vehicle Circulation Tax, aimed at Kenyan individuals purchasing cars at the juncture of acquiring insurance coverage.
In its forthcoming Medium Term Strategy spanning the Financial Years 2024/2025 to 2026/2027, the National Treasury has outlined plans for this levy, classifying it as a form of wealth tax, to be paid on an annual basis.
According to the leadership under Prof. Njuguna Ndung'u, the Ministry intends for Kenyans to commence tax payments as soon as they attain full ownership of their vehicles.
Remarkably, the motor vehicle circulation tax will run concurrently with the introduction of a carbon tax, designed to discourage the consumption of fossil fuels.
This move by the government is being presented as a dual-purpose solution, addressing two significant issues simultaneously: generating revenue for the state and curbing air pollution.
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The National Treasury is unveiling an ambitious set of tax reform proposals that could grant tax authorities unrestricted access to the financial data of Kenyan citizens, including real-time records of mobile money transactions.
Among the most notable recommendations within the ministry's forthcoming medium-term debt strategy is a provision to exempt the Kenya Revenue Authority (KRA) from certain data protection laws. This move is aimed at facilitating easier access to information.
Currently, the Data Protection Act of 2019 dictates that data related to private or family matters can only be accessed for a legitimate reason. It also mandates that personal information must be obtained directly from the individual in question.
However, the proposed changes would grant KRA exemption from these restrictions, giving them unhindered access to any data they require for the purpose of revenue collection enforcement.
To bolster tax revenue collection, the National Treasury envisions the integration of at least three key systems. This includes linking the Population Registry with tax administration systems. This integration would provide KRA with swift access to birth and death records, helping combat tax fraud associated with fictitious deaths.
Furthermore, banks and telecommunications companies would be interconnected with tax administration systems. This integration would empower KRA to monitor money transfers in personal and business accounts in real-time. The tax authority would also track digital platform income, such as M-Pesa and Airtel Money transfers.
To facilitate immediate tax collection at the source, KRA would have the capability to trace funds directed to specific mobile money wallets.
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