Storm over Yatani’s quest to bypass MPs on VAT rates

Economists and lawmakers have opposed a proposal that the National Treasury be granted authority to introduce tax regulations without reference to or approval by Parliament.

National Treasury Cabinet Secretary Ukur Yatani, in proposals sent to Parliament through the Finance Bill 2021, seeks unfettered powers to set value added tax (VAT) rates by changing the VAT Act without parliamentary approval.

2022 budget 

The VAT Act, 2013 requires the National Assembly to pass or veto any amendments by the CS to the Act seeking to lower, increase or exempt any goods from VAT.

Most goods and services currently attract a VAT of 16 per cent, petroleum oils are charged a VAT of 8 per cent while some products such as milk and bread are zero-rated. 

The CS said the change was to allow for “faster implementation” of tax changes at a time the government is seeking more revenue to finance the Sh3.6 trillion budget next year.

But former MP and Mandera Senator Billow Kerrow says Mr Yatani’s proposal is illegal.

Mr Kerrow says it violates the Public Finance Management Act, 2012 and Article 209 of the Constitution, and that should lawmakers pass the Bill, the decision would be reversed by the courts.

“The proposal by the Treasury is illegal and unconstitutional because you cannot give the Executive power to tax citizens as much as it wants. This would be a big mistake and if Parliament goes ahead to approves it, I would not be surprised if that decision is thrown out by the courts,” Mr Kerrow said.

Mr Kerrow said Parliament would be abandoning its legislative mandate should it give the Executive unfettered power to introduce tax laws, adding that allowing the CS’s proposal would set a dangerous precedent.

“This would allow any minister to wake up just any day and say ‘I want to increase VAT on bread or milk to 20 per cent’ for example. This is a critical matter that Parliament must not allow to happen,” the former MP said.

VAT rates

Suba South Member of Parliament John Mbadi, who is also a member of the National Assembly’s Budget and Appropriation Committee, says Parliament will not give Mr Yatani the powers he is seeking to alter VAT rates without lawmakers’ input.

Mr Mbadi said it is Parliament’s role to pass regulations and that that mandate cannot be set aside. 

“I have not yet read the (finance) bill, but Mr Yatani would have to appear before Parliament to tell us what makes it difficult to amend tax laws as usual where we (MPs) must approve the changes,” Mr Mbadi told the Nation.

“Any regulations must come to the National Assembly because we are the custodians of the citizens. We cannot not allow him (Mr Yatani) to have the power to change crucial tax rates without following due process,” Mr Mbadi said.

Economist Tony Watima says Kenya’s 2010 Constitution removed the power Treasury used to wield in setting tax rates, and that Parliament’s work is to put checks and balances on the Executive’s appetite to get more from Kenyans’ pockets.

Mr Watima said granting approval to Mr Yatani’s Bill would take the country back to an archaic tax regime that only worked for a few people at the expense of the majority through lobbying by powerful individuals and corporations.

The economist says Treasury’s proposal likely stems from pressure from the International Monetary Fund (IMF) for the government to be lean and raise more taxes as part of the conditions tied to the lender’s latest Sh257 billion loan to Kenya. 

“The IMF loan to Kenya comes with a lot of conditions that the government has to meet. One of these is that the government must collect more tax revenue, and I think the Treasury’s proposal is part of the plan to meet those targets without the political costs,” Mr Watima said.

He added: “Mr Yatani’s argument that he wants tax changes to be implemented quickly is invalid because the same can be achieved under the current framework.”

Mr Nikhil Hira, a tax expert at Bowmans Kenya, said it would be a surprise if Parliament passes Mr Yatani’s proposal.

Mr Hira said regulations proposed by ministers cannot override the law and that any such regulations seeking to amend tax laws would have to be approved by Parliament as provided for by the Constitution.

“I would be really surprised if they (MPs) passed the Bill. The law requires that Parliament should pass regulations, a function that cannot be legally bypassed by the Treasury,” Mr Hira said.

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