Delicate balancing act as House passes Finance Bill 2022
Members of Parliament follow proceedings as National Treasury Cabinet Secretary Ukur Yatani unveils the Sh3.3 trillion Budget on April 7.
It was a tricky balancing act as the National Assembly sat almost up to midnight on Thursday to pass the Finance Bill, 2022, that seeks to raise revenue to fund the Sh3.33 trillion Budget for the 2022/23 financial year.
Homa Bay Woman MP Gladys Wanga, who chairs the Finance and National Planning Committee that considered the Bill, Abdulswamad Sharif (Mvita), Jessica Mbalu (Kibwezi East), Aden Duale (Garissa Township), Jude Njomo (Kiambu), Kimani Ichung’wah Martin Peters Owino (Ndhiwa), and John Kiarie (Dagoreti South) are some of the few MPs who stayed to pass the Bill.
Initially, the Bill, as published and presented to the National Assembly, sought to raise at least Sh51.6 billion in revenue on top of the over Sh2 trillion that the government projects to collect in direct taxes and Appropriation In Aid (AIA). However, a series of amendments by the MPs saw various taxation proposals by the government shot down on account that their enactment would increase the cost of living to Kenyans, who are already overburdened. The move by the MPs will only make sense if President Uhuru Kenyatta signs the Bill into law as passed.
If the Bill becomes law, the National Treasury will have to look for alternatives to finance the Budget that has a deficit of Sh846 billion. The alternatives available include borrowing more from the local and foreign market. This, though, is limited because with a Sh8.6 trillion public debt, the government can only borrow up to Sh400 billion or risk violating the Sh9 trillion debt ceiling enacted in November 2019.
Already, the government has drafted amendments to the Public Finance Management (National Government) Regulations of 2015 to increase the debt ceiling to Sh10 trillion. This proposal must be considered by the National Assembly and the Senate.
But it is unlikely that the debt ceiling amendment will have been considered by the time the houses adjourn sine die on June 9 and June 16 respectively. This leaves the government with the option of reducing its budget for the next financial year to comply with the law.
The MPs’ actions will, nonetheless, favour the common person more as the cost of basic commodities like maize, wheat and cassava flour will drop after the MPs blocked the proposal by the National Treasury to remove them from the tax exempt list.
The proposal as contained in the Bill will have increased the price of maize flour, cassava flour, wheat or meslin flour and maize flour containing cassava flour by more than 10 per cent in weight.
It was also good news for the consumers of the liquid petroleum gas (LPG) and farmers as fertiliser has been zero-rated.
The Value Added Tax (VAT) on LPG was reduced by half from 16 per cent to eight per cent to cushion Kenyans.
“This House committed itself strongly to reducing VAT on LPG to protect the people from the high cost of living and we are not shouting about it,” Ms Wanga, who chairs the Finance and National Planning Committee that considered the Finance Bill, urged the House.
MPs Sharif, Ms Mbalu, Ichung’wah, Peters Owino supported the proposal, with Mr Duale unsuccessfully pushing for the VAT on LPG be reduced from 16 per cent to four per cent.
In raising revenue to finance the Budget, the Bill had proposed to increase taxes on motorcycles, cosmetics and beauty products, jewellery, beer, wines and spirits, chocolate, and bottled water.
The Bill proposed to raise duty on motorcycle to Sh13,403.64 per unit, up from Sh12,185.16, beer was to attract excise duty 10 per cent, spirits 20 per cent, glass 25 per cent (both imported and locally produced), alcohol advertising fees 15 per cent, cosmetic and beauty products 15 per cent.
The Bill further proposed to remove the tax relief that was afforded to the suppliers of maize flour and wheat flour that will now attract 16 per cent VAT.
This had the implication of putting ugali and bread, the vital products consumed by most Kenyans, out of their reach.
But even as this happened, the House agreed that excise duty on fees charged by digital lenders be at a rate of 20 per cent.
The committee also adopted the proposal that the excise duty on importation of cellular phone SIM cards be at 10 per cent of the excisable value to protect local manufacturers.
The Treasury was also on the receiving end as the MPs rejected a proposal to exempt excise duty on imported fertilised poultry eggs, with Mr Ichung’wah arguing it was for the betterment of the local poultry farmers and those with local hatcheries. It was bad news for the consumers of beauty products as MPs passed the Bill to retain the rate of excise duty at 15 per cent to discourage fakes and counterfeits.
This means that the consumers of cosmetics and beauty products will have to cough more after the committee agreed with the proposal to slap them with increased excise duty.
Jewellery users will also have to spend more after the MPs agreed with the Treasury to raise the excise duty to 15 per cent from 10 per cent currently.
The committee also rejected a proposal to charge excise duty on motorcycles which would have seen their prices go up to Sh13,403.64 per unit, up from Sh12,185.16 currently and in the process, hit the Boda boda industry.
The MPs also rejected a proposal in the Bill to levy 10 percent excise duty on bottled or similarly packaged waters and other non-alcoholic beverages.
The MPs were unanimous that increasing duty on bottled water will unnecessarily increase prices of the commodity.
The House adopted an amendment that the excise rate for fruit juices including grape must and vegetable juices, unfermented and not containing added spirit be reduced to Sh13 a liter.
The MPs also rejected the proposal to increase excise duty on beer warning that it will increase uptake of illicit brew.
“Every time one busy a beer, he or she buys one for the government. This culture must stop or else we end up with a very drunk government,” said Mr Njomo.
Consumers of wine spirits were hit as the MPs adopted a proposal that the excise rate be retained at Sh208.20 per litre.
While adopting this proposal, the MPs were unanimous that the greater evil is not in the beer. “We need to support our sorghum farmers who supply the beer manufacturers,” Mr Ichung’wah said.
The MPs also adopted a proposal by Kenya Association of Manufacturers (KAM) to exclude the proposed excise duty on locally manufactured chocolate products- white chocolate, chocolate in blocks, slabs or bars of tariff numbers 1806.31.00, 1806.32.00 and 1806.90.00 by excluding locally produced white chocolate products.
They noted that this is necessary to protect the locally manufactured chocolate and allow it to be competitive in promoting local industries.
In its report to the House, the Finance Committee had recommended that the proposed 15 percent excise duty on fees charged on advertisement by TV and radio stations, print media on forms of betting and gaming be reduced to five percent.
The committee noted that levying 15 percent will be damaging to the businesses as they are overtaxed and that there are already regulations governing the advertising of gaming activities in the country.
However, on Thursday last week, the House approved an amendment by the Dagoreti South MP to have excise duty increased from 15 percent to 20 percent.
Excise duty on Capital Gains Tax (CGT) was retained at 15 percent as proposed in the Bill.
This is against the proposal by the finance committee to have it reduced at 10 percent.
The House further rejected a proposal in the Bill to deposit 50 percent of the disputed amount before filing an appeal in High Court.
The MPs argued that this will reduce working capital for businesses and also deny justice to taxpayers where they are unable to raise the amount.
