Second chance? Why MPs are in the spotlight over Finance Bill petitions

Francis Kimani Kuria

The chairperson National Assembly Finance and Planning Committee Francis Kimani Kuria during a Session at Bunge Towers Nairobi on Thursday, May 23, 2024.

Photo credit: Dennis Onsongo | Nation Media Group

The spotlight is once again on the National Assembly Finance and National Planning Committee over ongoing public participation in the various tax proposals contained in the Finance Bill, 2024, amid worries that most of the input by stakeholders in last year’s Bill was largely ignored in the team’s final decision.

Over 600 stakeholders who have appeared before the Molo MP Kuria Kimani-chaired team have voiced their opposition to the Bill putting the team in the hot seat with a recent Infotrak poll saying four in five Kenyans are opposed to some major tax proposals in the Bill aimed at raising Sh300 billion.

In this years’ Bill, stakeholders have strongly opposed the proposal to introduce 2.5 per cent motor vehicle tax, reclassification of the VAT status of ordinary bread from zero-rated to vatable at 16 per cent and the Amendment of Section 51(2) of the Data Protection Act, which exempts the taxman from data privacy laws.

Removal of tax exemption of capital gains relating to transfer of title of immovable property to a family trust, and the repeal Section 14 of the Excise Duty Act, 2015 (EDA”) that provides for relief of excise duty on raw materials used to make excisable goods have also been a key concern to a majority of stakeholders.

The committee came under heavy criticism last year during consideration of the Finance Bill, 2023 now an Act after brushing aside major concerns raised by various sectors.

In 2023/24 budget issues brought up by stakeholders were raising VAT on petroleum from eight per cent to 16 per cent, housing levy which according to the original Bill was pegged at three per cent of an employee’s basic pay and the increase of income tax to 35 perc ent for those earning above Sh500, 000.

Doubling of VAT

The Kenya Association of Manufacturers projected that at least 16,000 were on the line with the enactment of the Finance Act, 2023 due to introduction of the housing levy and the doubling of VAT to 16 per cent that worsened the business environment for employers.

Passage of the Finance Act, 2023 also saw Matatu Owners Association announce a fare increase of 30 per cent.

Doubling of VAT to 16 per cent that was opposed by all stakeholders last year also saw the Energy and Petroleum Regulatory Authority (Epra) increasing fuel prices despite a court order stopping implementation of the Act.

“Epra has recalculated the maximum pump prices that will be in force between July 1, 2023 and July 14, 2023 taking into account VAT at 16 per cent,” Epra said in a statement after the President signed the Finance Act, 2023 into law.

Ignoring views of the public also wastes government resources as many bodies rush to court to stop implementation of various acts of the new law.

In the case of the Finance Bill, 2023, Busia Senator Okiya Omtatah and the Law Society of Kenya (LSK) went to court seeking stoppage of implementation of the Act citing various reasons including ignoring public views.

Despite almost all stakeholders rejecting introduction of the Housing levy, the committee only reduced the proposed percentage from three per cent to 1.5 per cent but still retained it in the final report adopted by the House.

The levy, initially proposed as a contributory scheme with an opt-out clause and a refundable savings plan, mutated into an uncapped tax based on gross income, and with no savings or refundable plan.

Also in the final report, the percentage was put at 32.5 per cent for those earning between Sh500, 000 and Sh800, 000 while those earning above Sh800, 000 were slapped with a PAYE rate of 35 per cent up from 30 per cent.

Lawmakers, however, retained the proposal to levy VAT on petroleum products at 16 per cent despite most stakeholders opposing it.

Other taxes that the committee retained despite the majority of stakeholders opposing include the three per cent digital tax, 15 per cent taxation on repatriated profits and the export promotion levy.

The Petroleum Institute of East Africa then submitted to the committee that it was opposed to the VAT increase as it would increase the cost of fuel by Sh12.56 and Sh12.76 per litre of diesel and petrol respectively.

Housing levy

Kenya Airline Pilots Association was among the bodies that opposed the housing levy arguing that most of its members had secured houses.

Article 118 of the Constitution states that “Parliament shall openly conduct its business and its sittings and those of its committees shall be in public and facilitate public participation and involvement in the legislative and other business of parliament and its committees

However, MPs have always turned it into a cosmetic exercise and have often bulldozed unpopular decisions such as the Affordable Housing levy that many stakeholders that appeared before the committee had opposed but was ignored and passed.

There were also proposals to make it voluntary or at least exempt those servicing mortgages.

Calls by stakeholders to retain eight per cent VAT on petroleum products was also rejected and instead the committee adopted the 16 per cent as was proposed in the Bill.

In 2018, the House rejected an eight percent VAT on petroleum products but former President Uhuru had his way after the House failed to veto his memorandum.

Parliament received at least 1,000 memorandum making it the Bill that received most memorandums from the public. Out of the number, 970 stakeholders rejected it but MPs still forced the unpopular decisions.

Plight of Kenyans

Mr Kimani while meeting various stakeholders this week pointed out that the committee was not ignorant of the plight of Kenyans, stressing that it is determined to make the best decision for the country.

“I have always emphasised that public participation is not an exercise in futility, it is enshrined in our Constitution and the aim is to hear as many Kenyans as possible in this particular matter,” Mr Kimani said. He also assured manufacturers that have also opposed the Bill that the committee will make the best decision to support manufacturers in the country.

“I want to assure you that we have all intentions to protect our manufacturers. We want to make Kenya a manufacturing country rather than a trading one”, Mr Kuria said.

On the proposed 2.5 per cent motor vehicle tax that has been opposed by nearly all stakeholders, Mr Kimani said the committee said they will make a decision based on the proposal made before them.

“We have received various proposals like increasing VAT from 16 per cent 17 per cent or increasing prices of petrol by three shillings and these are all options that we will consider. It does mean the tax has to go or stay, we have not made a decision yet and we will make a decision after listening to Kenyans,” Mr Kimani said.

He however expressed concern that while some stakeholders ask for zero rating of their products, they don’t transfer the benefits to their final price of the product or the service.

Committee vice chairman Benjamin Langat said they are not engaged in any public relations exercise assuring stakeholders that their views will be incorporated in the new Bill.

Kwame Owino, the Institute of Economic Affairs (IEA-Kenya) Chief executive officer, said it is only MPs who can decide whether public participation is just a cosmetic exercise.

“For us, we were given an opportunity to present and we did that. We hope the committee will consider them,” Mr Owino said.

Ignoring public views and voting in euphoria have led to many MPs later realising some of the punitive taxes contained in the Bill.