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House team succumbs to public pressure, drops ‘punitive’ taxes

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Parliament buildings in Nairobi in this picture taken on June 7, 2024. 

Photo credit: Dennis Onsongo | Nation Media Group

The sustained pressure from Kenyans may have yielded fruit after the National Assembly’s Finance Committee last evening agreed to drop some of the punitive taxes proposed in the Finance Bill, 2024.

The committee is today expected to table its report, with recommendations, in the House.

This comes as Kenya Kwanza and Azimio MPs were summoned by their respective leaderships to meetings today to firm up positions on the Bill.

Kenya Kwanza’s PG, to be chaired by President William Ruto, comes as his emboldened deputy, Rigathi Gachagua, has been accused of inciting MPs associated with him to shoot down the Bill over its punitive proposals.

Azimio has also urged its members to shoot it down, but with the committee recommending a deletion of the punitive taxes, it remains to be seen how the MPs will approach debate on the Bill.

Removing bread from the list of zero-rated commodities, imposition of 25 per cent excise duty on crude edible and refined oils, motor vehicle tax at 2.5 per cent of the value of vehicle, eco levy at Sh150 per kilogramme and Import Declaration Fee (IDF) at 3 per cent were some of the contentious provisions in the Bill.

Excite Kenyans

But the Finance committee chaired by Molo MP Kimani Kuria wants the proposed excise duty on vegetable oils reduced from 25 per cent to five per cent.

It is not clear whether this applies only to crude edible oil or includes refined oil.

But what will likely excite Kenyans is the proposal to remove vegetable oils from VAT list, however, it is not clear whether it will be on the zero-rate list or tax exempt list.

The committee concluded its report writing in Naivasha last evening, where it had retreated after undertaking three weeks of public participation on the Bill and receiving over 500 memoranda.

A member of the committee who did not want to go on record, disclosed to Nation that the committee maintained bread in the list of the zero-rated commodities.

However, imposing a 25 per cent excise duty on vegetable oils would have spoiled the whole broth since edible oil is a key ingredient in the preparation of home food and other manufactured foodstuff like bread.

The MP was , however, not certain whether the duty is applicable on crude edible oil alone or includes refined edible oil or both.

Currently edible oil is among the VATable commodities.

The punitive excise duty on edible oils would have had ripple effects extended beyond the kitchen, affecting other essential products derived from vegetable oils such as bar soap and margarine, whose costs would go up.

Such price hikes would have disproportionately affected the most vulnerable members of society, exacerbating the already high cost of living and plunging millions into deeper financial distress.

The new tax would also have threatened to dismantle the government’s own agenda of promoting local value addition in agribusiness and stifle the growth of local edible oil production.

This is notwithstanding that the edible oils sector is a significant contributor to Kenya’s economy, directly employing approximately 10,000 individuals and indirectly supporting over 30,000 jobs.

The committee has recommended to the House that the proposed introduction of motor vehicle tax at the rate of 2.5 percent of the value of the car be deleted from the Bill.

The committee has also recommended to the House to have the Import Declaration Fee (IDF) maintained at the current rate of 2.5 per cent as opposed to 3 per cent as proposed in the Bill.

The MPs also struck out a proposal to impose VAT on financial transactions in what would have escalated the cost of banking.

“We have sorted out the Kenyans. We listened to Kenyans one by one when they presented their views and did as they recommended to this committee,” the member of the committee told Nation in confidence.

Further, the committee in its report has recommended that the eco levy be applied only on imported products. This is a big relief to consumers of plastic materials, diapers and sanitary towels, whose prices were set to increase on the new tax.

The Bill is proposing an eco levy at the rate of Sh150 per kilogramme. The committee wants the tax dropped on grounds that it will increase the cost of products that are packaged in plastic materials, including bread, milk and others.

Kenyans, lawyers, financial experts and local manufacturers had opposed the Bill on grounds that it will increase the cost of living, overburden the already overtaxed taxpayer and make Kenya not a conducive location for the manufacturing sector.

“If implemented as proposed, this excise duty will trigger an unprecedented surge in the price of cooking oil, a staple in Kenyan households,” the Kenya Association of Manufacturers (KAM) warned in a presentation to the committee during public hearings on the Bill.

“In light of these grave implications, we urgently call upon the government to scrap the proposed 25 per cent excise duty on vegetable oils from the Bill. This tax is not just an economic miscalculation but a potential humanitarian crisis that Kenya cannot afford,” the association said.

Azimio has already warned its members against absenting themselves from chamber during debate and voting on the Bill.

According to Leader of Minority Opiyo Wandayi (Ugunja), those who fail to heed the coalition position risk disciplinary action, including expulsion from their respective parties.

An invite from Mr Wandayi to members read: “Good afternoon, Hon. Members of the National Assembly. Upon consultations, we have scheduled a PG meeting in the Mini Chamber at County Hall on Tuesday, 18th June 2024, at 5pm. The meeting shall deliberate on the Finance Bill 2024 and chart the strategic way forward. Let's endeavour to acquaint ourselves with the Bill before that time. Physical attendance is mandatory. Thank you.”

But Laikipia East MP Mwangi Kiunjuri noted that “we will have to look at the Bill and the report of the committee and strike a balance that is favourable to Kenyans and the government as it seeks to finance its budget.”

“As MPs we have looked at the Bill and given our advice. We will make amendments here and there because this is our feeling as MPs,” Mr Kiunjuri, who is also the party leader of The Service Party, said even as he assured Kenyans that the President has their interests at heart.

“The President has a listening ear and we believe he will listen to us,” said the Laikipia East MP.

On Monday, National Assembly Leader of Majority Kimani Ichung’wah (Kikuyu) and Mr Kiunjuri aimed a dig at DP Rigathi, accusing him of wrecking the government from within.

“Those inciting Kenyans against the Bill, specifically those in government, should stop,” charged Mr Ichung’wah.

“You cannot be a leader in government and incite some MPs in night meetings to go and defeat the Finance Bill that contains budget mechanisms for your office, including the issues that touch on Kenyans like medicines, schools, roads, electricity and markets,” he said.

The Kikuyu MP noted that they will consider the Bill and amend it as per the views the people presented during the public participation exercise.