Tough times ahead as tax breaks come to an end
Anthony Mwangi and Lewis Njoka
Kenyans should brace themselves for tougher economic times ahead after Parliament approved the removal of Covid-19 tax relief measures meant to cushion companies and individuals from pandemic shocks.
The measures had been introduced to cushion Kenyans as the pandemic led to widespread job cuts and general underperformance of the economy as global commerce froze.
Yesterday, Members of Parliament (MPs) unanimously passed the Tax Laws Bill in a move which restored the Value Added Tax (VAT) to 16 from 14 per cent, while Income Tax returned to 30 per cent from 25 per cent. The changes take effect starting January 1, 2021.
Treasury Cabinet Secretary Ukur Yatani says the temporary measures were necessary to cushion Kenyan businesses and provide critical relief to the most vulnerable in society but a continued dip in revenue and a surge in debt had necessitated the reintroduction of the previous tax regime.
“It has, therefore, become necessary to return to the pre-Covid-19 tax rates, effective January 1, 2021,” Yatani said.
The changes are expected to boost the dwindling tax collections during the year, which saw the Kenya Revenue Authority (KRA) fail to meet its projected targets.
However, the Finance team approved the proposals set by the Treasury with a few amendments.
The committee, chaired by Homa Bay Woman MP Gladys Wanga, had observed that to cushion Kenyans against adverse effects of Covid-19 and for further liquidity in the economy, the government through the Tax Laws Amendment, 2020, lowered tax rates for corporate and personal incomes, Turnover Tax, Value Added Tax and provided tax relief to low income earners and employees.
Specifically, individual Income Tax rates and the Residents Corporate Tax rates were reduced from 30 per cent to 25 per cent.
“These measures were estimated to cost the exchequer Sh172 billion in revenue forgone by the government in one financial year.”
In effect, the taxation measures have affected the implementation of government priority projects under Big Four agenda.
Leader of Majority in the National Assembly Amos Kimunya noted that there was need for the government to continue financing projects and offering services, especially the Big Four Agenda.
Kimunya urged his colleagues to pass the Bill which will help the government raise revenue to support its programmes.
“I plead with you to support the proposed tax changes so that the government can continue operating without hitches,” Kimunya said.
The government, he noted, was in need of money to pay salaries to civil servants and in particular raise cash to cater for schools ahead of reopening next month.
Minority Leader John Mbadi said the disadvantage of losing revenue outweighs the benefits of individuals increasing their liquidity.
He said that despite the tax relief most of the vulnerable people in society did not benefit. “My suggestion is that the government should revert to the old taxes.”
Similar views were expressed by Garissa Township Aden Duale, Chris Wamalwa (Kiminini), Kimani Ichung’wa (Kikuyu) and Ali Adan Haji (Mandera South).
Haji, while defending the move by the government to reinstate the old taxes, said the levies were an essential source of money for the government.
“The government needs money to operate; there is no other way. This can only be raised through taxes.”
Kiminini’s Wamalwa said whereas there was need for the government to raise taxes to fund its programmes, it was important to give priority to important issues such as doctors’ salaries to end the current crisis in the health sector.
“This is the time to harmonise and rationalise our priorities. Doctors are dying, Kenyans cannot afford food.
I support but let’s look at the issue of corruption so that money raised does not end up in individual pockets,” Wamalwa said.
Makueni MP Dan Maanzo said it was time to revert to the old taxes to enable the government to finance its projects.
“The whole world has suffered economically. Unless we pass this, the country will continue to suffer.
I think it is a good measure and during public participation Kenyans felt that the measures only helped a section of the population,” he added.
However, Kikuyu MP Ichung’wa criticised the government, saying that lowering VAT was counterproductive as it only benefited those in business.
Duale said the onus was on MPs to choose between a popular decision or a show of leadership.
“The reason behind the tax relief was to create a way for survival. Many Kenyans lost their jobs, others were handed 50 per cent pay cuts as well as unpaid leave.
There are a lot of stories out there that the reason for the reversal is because of demands by the International Monetary Fund.
The economy is in the ICU, the decision is whether we remove it from the ICU by returning the taxes.”
Defending the move by Treasury to revert to the old taxes Wanga said those earning Sh24,000 and below will continue to benefit from the tax cushion.
