All eyes are on MPs this week as the National Assembly opens the window for public participation on the Finance Bill 2022 that is threatening to increase the cost of living as the country gears to collect revenue to finance the ambitious Sh3.33 trillion Budget for the 2022/23 financial year.
The Bill, which contains the measures to raise revenue, as unveiled in the National Assembly by National Treasury Cabinet Secretary Ukur Yatani on April 7, seeks to raise an additional Sh50.4 billion, the highest ever in the country’s history to finance the budget.
What the country has raised through the Finance Bill has not exceeded Sh15 billion.
But with the government keen to finance its operations in the next financial year fresh from the Covid-19 pandemic that hit the global economy hard and an election on August 9 this year, it’s likely that President Kenyatta’s last budget will leave Kenyans with a bitter sting.
The President retires after the August polls, having served his second and final five-year term.
Already, 58 entities and tax and finance experts have been invited to present their views on the Bill before the Finance and National Planning Committee of the National Assembly from tomorrow in a three-day marathon of sittings.
The MPs debating the Finance Bill have one eye on the election, meaning, they might not give it the attention it deserves.
Nevertheless, it will be interesting how they navigate it given the promises they are giving to their electorate.
A poisoned chalice
The National Treasury has, in effect, handed the Finance and Planning Committee, chaired by Homa Bay Woman Representative Gladys Wanga, a poisoned chalice.
If the committee agrees to the increases, it will effectively bear responsibility for increasing the cost of living for an already overburdened Kenyan population.
The incoming administration will also have to contend with a disenfranchised population (the poor) who will bear the brunt of over-taxation.
Yesterday, Ms Wanga said her committee plans to speed up the public hearings on the Bill and assured Kenyans that all will be well.
“We’ve planned to ensure that we conduct a thorough public participation on the Bill. The views raised by Kenyans on the Bill shall form part of our report to the House,” she said.
If MPs pass the Bill in its current form, the impact on Kenyans will be dire.
The proposed taxation measures risk sliding the country into hyperinflation and increase the cost of living. This is because most of the products earmarked for higher taxes will affect the Consumer Price Index (CPI) due to the impending increase in consumer prices.
The high taxes will also raise production costs for local manufacturers, thus favouring imports, which will affect balance of trade and forex, thereby inhibiting manufacturing, a key pillar in President Kenyatta’s Big Four Agenda.
Job losses are also imminent as local manufacturers seek to cushion themselves from increased costs of production brought about by inflation pressure on raw materials, freight costs and increased wages.
Some manufacturing industries like glass manufacturers are also likely to shut down as they are likely to become uncompetitive rendering the imports to thrive in the local market.
Financial and tax entities invited by the committee include the Institute of Certified Public Accountants of Kenya, Kenya Association of Manufacturers, Westminster Consulting, East Africa Law Society, Kenya Bankers Association, PricewaterhouseCoopers Limited, Deloitte and Touche, and the Kenya Private Sector Alliance.
Kenya Breweries Limited/UDV (K) Limited, The Scotch Whisky Association, Pubs, Entertainment and Restaurant Association of Kenya, Coca-Cola Beverages Africa, Alcohol Beverages Association of Kenya and Kenya Wine Agencies Limited have also been invited before the Gladys Wanga committee.
Key in the Bill is the state’s target to slap higher excise taxes on popular products, including motorcycles, cosmetics and beauty products, jewellery, beer, wines and spirits, chocolate and bottled water to raise the additional revenue to finance the budget.
The excise duty charged on motorcycles will be raised to Sh13,403.64 per unit, up from Sh12,185.16 currently—marking a 10 per cent jump that will affect the affordability of the two-wheelers, popular with Kenyans seeking to beat traffic jams in congested towns and cities, or manoeuvre difficult terrain in rural parts of the country.
This marks a double blow for boda boda operators, who have also been included under a compulsory third party insurance scheme, prompted by the rising number of accidents that have left many dead or injured and unable to pay hefty hospital bills.
Cosmetic and beauty products as well as jewellery are also targeted for higher taxes with the Finance ministry raising the excise duty on these products to 15 per cent from 10 per cent currently.
The Bill seeks to remove the tax relief that was afforded to the suppliers of maize and wheat flour. These will now attract 16 per cent Value Added Tax. This means that the cost of the two vital products Kenyans consume will go up, further increasing the cost of living.
Bottled water will see a marginal rise on duty charged, with the Treasury proposing to impose a tax rate of Sh6.60 per litre up from Sh6.03.
Consumers of beer products will face higher bills as Mr Yatani proposed wide ranging tax rises on various categories of alcoholic products.
The excise duty on beer, cider, perry, mead, opaque beer and mixtures of fermented beverages with non-alcoholic beverages and spirituous beverages of alcoholic strength not exceeding six per cent will attract a tax of Sh134 per litre, up from Sh121.85 currently—a jump of about 10 per cent.
For wines, including fortified wines and other alcoholic beverages obtained by fermentation of fruits, the State seeks to introduce a higher tax of Sh229 per litre, up from Sh208.20 presently.
The excise duty on spirits of undenatured ethyl alcohol, spirits liqueurs and other spirituous beverages of alcoholic strength exceeding six per cent will attract a higher tax of Sh335.30 per litre compared to Sh278.70 currently.
The State, however, plans to ease the pain for consumers of cigars, cheroots, cigarillos, containing tobacco or tobacco substitutes with a lower tax demand of Sh13,296.6 per kilogramme compared to Sh13,906.04 presently.
Consumers of plain cigarettes without filters nevertheless face the impact of higher taxation of Sh2, 752.97 per mille, up from Sh2, 502.74.
Other manufactured tobacco and manufactured tobacco substitutes and reconstituted tobacco as well as tobacco extracts and essences will attract a higher excise duty of Sh10,707.88 per kilo, up from Sh9,734.45 presently.
The Finance Bill shows that Mr Yatani steered clear of increasing taxes on critical products such as petroleum as he sought to address the welfare of Kenyans stung by the high cost of living.
The proposed amendments have empowered the Kenya Revenue Authority Commissioner-General Githii Mburu to exclude some products from annual inflation tax adjustments depending on economic circumstances facing producers and consumers of the applicable goods.
At the moment, Mr Mburu has no power to exclude any of the about 31 excisable goods from higher taxes.
The inflation adjustment, which came to force in 2018, is a means of protecting the government’s spending power from being eroded by the rising cost of living.
Consumers and manufacturers of the excisable goods have in the past two years protested upward adjustment of taxes in line with average inflation for the previous year, citing economic hardships brought about by the Covid-19 shocks.
The government expects to spend Sh3.3 trillion in the financial year 2022/23.
Of this, Sh2.2 trillion will go towards recurrent expenditure, Sh715 billion towards developmental expenditure and Sh370 billion to counties.
To finance this expenditure, the government expects to raise total revenue of Sh2.4 trillion.
As a result, the government will have a fiscal deficit of Sh862.5 billion.
The government has indicated that spending priorities will be focused on economic recovery and implementation of the Big Four Agenda.
Despite the pro-poor measures, Mr Yatani’s budget has a gap of more than Sh800 billion, which could mean more debt pain for the taxpayers, if the State fails in its promise to tighten spending and step up efforts to collect more taxes as it seeks to bring ballooning state debt under control.
The budget deficit is projected to drop to 6.2 per cent of gross domestic product (GDP) in the year through June 2023. This compares with an estimated deficit of 8.1 per cent of GDP this year.
Mr Yatani plans to finance the Sh862.5 billion-shilling gap by raising Sh581.7 billion domestically and Sh280.7 billion shillings offshore.