LSK petitions parliament on tax proposals

Ukur Yatani and Gladys Wanga

National Treasury Cabinet Secretary Ukur Yatani (right) and National Assembly Finance Committee chairperson Gladys Wanga pose for a photo  at Parliament Buildings ahead of the reading of the budget statement last month.

Photo credit: Jeff Angote | Nation Media Group

What you need to know:

  • LSK is among the 58 entities and individuals invited to present their views before the Finance committee.
  • LSK warns the MPs that, if they enact the Bill as it is, it will make the country “highly unattractive” as a business destination.

The Law Society of Kenya (LSK) now wants MPs to remove maize and wheat flour from the list of goods and services that are set to attract 16 percent Value Added Tax (VAT) in the proposed Finance Bill 2022.

In a memorandum to the National Assembly signed by its president, Mr Eric Theuri, LSK argues that including essential commodities in the category of taxable goods will make life unbearable for Kenyans.

The Bill, introduced in the National Assembly on April 11, 2022, seeks to raise an additional Sh50.5 billion to finance the ambitious Sh3.33 trillion budget. 

Although the government is keen to collect more revenue, LSK warns that this runs the risk of backfiring if passed in its current form. The LSK position on the Bill comes as the Finance and National Planning Committee of the National Assembly begins a three-day exercise of collective views from finance, tax experts and members of the public on the Bill today.

LSK is among the 58 entities and individuals invited to present their views before the Finance committee chaired by Homabay County Woman Representative Gladys Wanga today.

It will appear before the committee on Thursday.

The LSK memo raises issues with at least 22 proposed amendments in the Bill , saying, it exemplifies an appetite for tax revenue that will kill businesses, livelihoods and the general welfare of ordinary Kenyans.

The LSK memorandum warns the MPs that, if they enact the Bill as it is, it will make the country “highly unattractive” as a business destination, increase the levels of unemployment, encourage the use of substandard or illegal products and ultimately lead to increased levels of insecurity.

Talking to journalists yesterday, Mr Theuri warned that, in the event parliament does not yield to sense, “then we will robustly challenge any changes in law that are unconstitutional and against good order and public security.”

The Bill proposes to remove the tax relief that was afforded to suppliers of maize flour and wheat flour that will now attract 16 percent VAT. This means that the cost of the two vital products consumed by Kenyans will go up, further exacerbating the cost of living for the already overburdened taxpayer.

The Bill also proposes to increase taxes on motorcycles, cosmetics and beauty products, jewellery, beer, wines and spirits, chocolate, and bottled water.

Specifically, duty on a motorcycle unit will be raised to Sh13,403.64 per unit, up from Sh12,185.16, beer 10 percent, spirits 20 percent, glass 25 percent (both imported and locally produced), alcohol advertising fees 15 percent, cosmetic and beauty products 15 percent. 

“The right thing for the MPs, in this case, is to amend the Bill as appropriate and delete the proposals that will negatively affect the lives of the people they have been elected to represent,” the lawyers said even as they called on Kenyans to urge their MPs to reject the Bill.

The LSK also notes that the passage of the Bill will hit the health sector hard as it seeks to increase the cost of clothes and equipment used for safety and protection by hospitals and clinics.

This, they say, goes against the government’s own objectives regarding the affordability of healthcare in the country.

Tax experts have faulted a proposal by the National Treasury in the Bill that firms and individuals fighting Kenya Revenue Authority (KRA) in court over tax demands, deposit 50 percent of the disputed amount in a Central Bank of Kenya account, saying, it will hurt businesses.

Mr Yatani had proposed amendments to the Tax Tribunals Act, 2013, to force firm involved in a row with KRA deposit 50 percent of the amount KRA claims to be owed before appealing, should KRA win at the Tax Appeals Tribunal. Mr Yatani said the move was meant to protect the disputed tax revenue.

“We have noted that tax disputes take too long to conclude, especially after judgment by the Tax Appeals Tribunal,” said Mr Yattani. However, LSK warns that this will impede the right to fair administrative action and apportioning of guilt before the parties involved can be given the opportunity to prove their innocence.

Interestingly, the same requirement for the payment of 50 percent deposit is waived when it is KRA on the other side, “thereby giving KRA preferential treatment before the law.”

LSK further notes that the Bill will make locally manufactured goods for the export market more expensive and uncompetitive, which will negatively impact foreign exchange earnings, the balance of trade and “our ability to import goods that we rely on to run and generate income in our economy.”

LSK notes that in this kind of economic climate, the taxation policy adopted by the government should be one that spurs economic growth and job creation by granting tax incentives to players in both the formal and informal sectors.