Protesters engage the police during the Anti-Finance Bill demonstrations in Nairobi on June 20, 2024.
Kenya's President William Ruto, bowing to pressure from an angry public, rejected the contentious Finance Bill 2024 in its entirety and called for austerity measures to compensate for the potential revenue shortfall in his Ksh3.99 trillion ($30.93 billion) budget for the 2024/2025 fiscal year.
The decision came in the crescendo of a public outrage over high taxation.
The Parliamentary Committee on Finance had put the amount to be raised from the taxation measures contained in the bill at Ksh302 billion ($2.34 billion).
The withdrawal of the proposed revenue law came even after the government announced on June 18 the shelving of several new taxes and suspension of others costing the exchequer an estimated Ksh200 billion ($1.55 billion).
Public demonstrations marked by deaths, injuries, looting and destruction of property kicked off across the country.
On June 26, President Ruto sent the Bill back to the House for deletion.
“Listening keenly to the people of Kenya, who have said loudly that they want nothing to do with this Finance Bill 2024, I concede and therefore I will not sign the 2024 Finance Bill and shall subsequently be withdrawn,” he said.
The Kenya Kwanza administration’s aggressive fiscal policy ostensibly to lift the country from a “debt hole” and shore up its battered finances through multiple taxes and levies has weighed heavily on businesses and households leading to a decline in foreign direct investment and closure of many businesses, with jobs losses.
Tightening fiscal policy increases tax rates and reduces government spending thereby reducing the purchasing power of consumers and businesses while a loosened fiscal policy increases aggregate demand directly through a reduction in tax rates and increase in government spending.
The government is hoping to boost tax revenues by raising the country’s revenue yield from the current 13.5 percent of GDP to at least 20 percent of the GDP by the end of the 2026/27 fiscal year.
But the Kenya Revenue Authority (KRA) is missing its revenue targets as a result of falling household and business incomes associated with a tough operating business environment plagued by a high cost of doing business.
The Finance Bill 2024 proposed punitive taxation measures, including increasing import declaration fee (IDF) rate from 2.5 percent to three percent of customs value leading to a rise in cost of imports including imports of raw materials, inputs, and equipment by manufacturers.
New levies
The Bill proposed to introduce an eco-levy on select locally manufactured and imported goods with targeted products being mobile phones and telecommunication equipment, automatic data processing machines (computing equipment such as personal computers, servers), radio and television broadcast equipment, microphones, and batteries. Others are rubber tyres, plastic packaging materials and diapers.
More imported items added to the scope of the levy, key among them being milk and cream, spirits, motorcycles, sanitary ware, leather products, footwear, and furniture.
The Bill proposed to introduce motor vehicle tax at a rate of 2.5 percent of the value of the motor vehicle provided that the tax payable shall not be less than Ksh5,000 ($38.75) and that an insurer of the motor vehicles shall collect and remit motor vehicle tax within five working days after issuing a motor vehicle insurance cover.
The Bill also contained tax proposals with the effect of increasing the cost of bread, cooking oil, mobile money transfer services and banking services.
The government is seeking to raise road maintenance levy in the fuel pricing formula by Ksh9 ($0.065) per litre which will effectively increase the RML from Ksh18 ($0.13) to Ksh27 ($0.2) and increase the retail price for fuel.
In 2023, the government introduced the controversial housing levy of 1.5 percent of the employee’s gross salary to be payable by both employers and employees.
The levy was suspended by the High court, which termed it unconstitutional, prompting MPs to draft and approve new regulations for its implementation. The new regulations are also a subject of a fresh legal battle.
The government also introduced two new pay-as-you-earn tax bands in addition to the current band of 30 percent. The top rate increased from 30 percent to 32.5 percent for income between Ksh500,000 ($3,875.96) to Ksh 800,000 ($6,201.55) and to 35 percent for income exceeding Ksh800,000.
It also introduced withholding tax of five percent for residents on digital content monetisation (taxation of digital content).
In January this year, the National Treasury also published proposals for expanding the tax base to farmers by subjecting a withholding tax of five percent based on value of the produce, as part of a medium-term revenue mobilisation plan.
