New Tax Policies and Their Effects on Kenyans
New Tax Policies and Their Effects on Kenyans
The National Tax Policy will be impacted by the National Assembly Finance Committee’s five main proposals, which will affect how much fundamental commodities and services are taxed.
The Finance Chair and Molo MP Kimani Kuria presented a report to the house floor that included several significant recommendations, including raising the tax base, reducing excise duty, and implementing Value Added Tax (VAT).
Excise Duty
It has been suggested that only luxury items and communication services be subject to excise duty.The Committee suggested that food goods, commonly used basic commodities, pharmaceuticals, and agricultural products be exempt from the levy.
This action will result in a decrease in the price of several excisable items, assuming the suggestions are approved.”Say that the following will be applicable with respect to Excise Duty. Product excise duty rates cannot be higher than the best excise duty rate.
“The optimal rate shall be based on studies conducted by the Kenya National Bureau of Statistics (KNBS). The optimal excise duty rates undergo public participation and approval by the National Assembly. The optimal tax rate shall be reviewed every three years,” read the recommendations in part.
VAT Rates
The Committee is also proposing to have multiple VAT rates on commodities to cushion the country against external shocks. Notably, one of the most common commodities on which VAT is imposed is fuel.
According to the Finance Act, fuel VAT is now fixed at 16%, which has caused pump prices to exceed Ksh200. In order to protect the economy against shocks brought on by worldwide trends and the unfavorable effects of these products’ price increases, multiple VAT rates should be provided.
“Provides that in addition to costs compliance and administration costs, as provided for in the draft National Tax Policy, the granting of VAT Exemptions be based on incentivizing investment and cushioning Kenyans from economic shocks,” the Committee suggested.
Increasing the Tax Base
The Committee also suggested expanding the tax base and focusing on the mostly untaxed informal sector in an effort to increase the nation’s revenue. This action will hurt industries that have mostly escaped taxes, which may result in those working in the unorganized sector earning less money overall than they are already from their companies.
The MPs also underlined that other sectors such as cooperatives did not need to be overburdened with taxes given their contributions to the country’s agricultural industry.
“Provide alternative strategies to tax the informal sectors, for instance, possible use of withholding taxes which require businesses to withhold taxes at source when making payments in hard tax sectors,” he said.
Electronic Fund Transfers
However, the MPs suggested using digital payments for products and services so that taxes could be easily tracked. It was clarified that the action might contribute to the tax base’s expansion.
Tariffs on Imported Items It is suggested that tariffs on imported items ought to be supported and grounded in economic analyses.
Legislators are also suggesting that goods targeted at bolstering regional manufacturing should be subject to five-year charges. This will increase tax predictability and aid in gauging the success of government taxes.
