What you need to know:
- Yatani seeking to change the VAT Act to give him powers to introduce regulations without the need for Parliament’s approval.
- CS walks a tight rope entailing revival of the economy and raising taxes to finance the President’s legacy projects.
Treasury Cabinet Secretary Ukur Yatani wants unfettered powers to set Value Added Tax (VAT) without the need to seek Parliament’s approval.
This follows a raft of regulatory changes intended to yield more revenue to finance the Sh3.6 trillion budget to be implemented from July.
Bread, motorcycles, imported jewelry, betting, and nicotine pouches are some of the products that will attract higher taxes in President Uhuru Kenyatta’s final full-year budget.
In amendment proposals sent to Parliament on Friday through the Finance Bill 2021, Mr Yatani seeks to change the VAT Act to give him powers to introduce regulations without the need for MPs’ approval.
The change is intended to provide room for “faster implementation” of tax changes, but experts believe it could run into legal hurdles as it denies taxpayers their right to representation by their MPs.
Mr Yatani walks a tight rope balancing between facilitating revival of the economy from the effects of the Covid-19 pandemic and raising the revenue needed to finance the President’s legacy projects.
“The budget is notable for its restraint in tax increases. I don’t think, however, MPs will allow the CS to increase VAT without their approval,” Nikhil Hira, a director at Bowman’s tax practice said.
Treasury has proposed to amend the Excise Tax Act by substituting the excise duty paid per motorbike from the current Sh11,608.23 per unit to a flat rate of 15 per cent, as detailed in the Finance Bill 2021.
This will see any motorbike priced above Sh79,000 fetch more in taxes in a direct hit on the booming motorcycle taxi sector, commonly known as bodaboda, which is a key mode of transport in both urban and rural areas.
Imported jewellery will also now attract excise duty at the rate of 10 per cent, while products containing nicotine or nicotine substitutes will attract a Sh5,000 tax per kilogramme.
This will bring into the tax net the latest inventions in the tobacco industry, such as British American Tobacco’s (BAT) nicotine pouches.
BAT said in February it had stepped up talks with the government to address a regulatory dispute that has halted the sale of the nicotine pouches, which trade locally under the Lyft brand. Treasury has also reversed the controversial betting tax that was scrapped during last year’s budget-making.
This means that punters will pay 20 per cent in excise duty on all amounts wagered irrespective of the outcome of the bet.
“Excise duty on betting shall be 20 percent of the amount wagered or stakes,” the Bill says.
Disposable plastic syringes and others with or without needles will also attract the 16 per cent VAT after being dropped from the list of exempted products.
Other human or animal substances prepared for therapeutic or prophylactic uses will also attract the 16 per cent VAT. Antisera and other blood fractions and modified immunological products, whether or not obtained by means of biotechnological processes, will also now be costlier by at least 16 per cent.
Taxpayers will now be required to keep documents for seven years to allow KRA to conduct investigations for a longer period from the current five. Powers to allow a KRA commissioner to exempt a supplier from withholding VAT have also been removed.
It will be good news for internet users after the Bill proposed to allow licensed persons, who buy data in bulk for resale, to offset the excise duty payable on internet data services. This is likely to lower the cost of internet in the country.
Treasury is also going for a larger share of taxes on the sub-contractors in the mining sector. The Finance Bill will now see non-resident sub-contractors in the mining and petroleum sector pay a withholding tax at the rate at 10 per cent on the gross amount of service fee paid by a contractor or licensee, up from the current 5.625 per cent.
The primary contractor will deduct a withholding tax at the rate of 10 per cent upfront, down from the current 12.5 per cent, bringing the total tax on sub-contractors to 20 per cent.
To get the latest Sh257 billion loan commitment from the International Monetary Fund (IMF), Treasury promised to increase internal sources of revenue through taxes to cut on the ballooning budget deficit that is blamed for the insatiable borrowing.
Fair share of taxes
Treasury has also made a longer dive into income of online firms to allow them to pay a fair share of taxes. It wants to amend section 3 of the Income Tax Act to bring on board the digital service providers to pay the 16 per cent VAT on business carried out over the internet or an electronic network including a digital marketplace. A digital marketplace is taken to mean an online platform, which enables users to sell or provide services, goods or other property to other users.
“A person subject to digital service tax shall submit a return and pay tax due to the commissioner on or before the twentieth day of the month following the end of the month in which the digital service was offered.”
Mr Yatani says the Bill will also increase the maximum reward to informers who provide KRA with details leading to identification and recovery of unassessed taxes in order to enhance tax compliance.
The new law is also expected to sweeten the deal for informers who lead the taxman to burst tax cheats.
For information leading to identification of unassessed duties or taxes, an informer will receive one per cent of the taxes identified or Sh100,000, whichever is higher.
In addition, if the information leads to actual recovery of taxes, then the informer will receive Sh2 million or 5 per cent of the taxes recovered whichever is lower.
It also wants to speed up the process at the tax tribunal by putting a time limit for determination of appeals at the tribunal to a maximum of 90 days.
Retirement Benefits Act
Most of the provisions of the new taxes will come into effect on July 1, while other sections come into operation on January 1, 2022.
Anyone who directly or indirectly holds at least 20 per cent of the voting rights in a company will now be deemed to have control of the firm for tax purposes.
Also, if the person advances a loan to another person that constitutes at least 70 percent of the book value of the total assets of the other person excluding a loan from a financial institution, then that individual will be deemed to have control.
Also, if a person supplies at least 90 per cent of the purchases of another person or, in the opinion of the commissioner, influences the price or any other condition of the sales of another person, then they will be deemed to have control.
The Bill proposes to amend the Capital Markets Act to enhance its powers by specifying the period within which the CMA tribunal shall hear and determine an appeal against administrative action by the authority.
“This is intended to improve efficiency in the capital markets and ensure fair administrative action by the authority,” Mr Yatani says in his memorandum to Parliament.
“The Bill seeks to amend the Retirement Benefits Act, 1997, to provide for the registration and regulation of corporate trustees that provide services to pension schemes and empower the authority to extend the timeline for the submission of audited accounts during extraordinary times,” he said.