Such proposals as the tripling of capital gains tax to 15 percent, the increase of digital services tax (DST) rate by 100% and several revisions to excise duty rates on various goods and services were presented to the August House for consideration. The Bill also proposes to have taxpayers appealing against disputed tax depositing 50% thereof ahead of lodging the appeal. Whereas the Parliament has adopted quite a bit of these proposals, a number have been rejected.
The Parliament has stayed the DST rate at 1.5%, giving a sigh of relief to especially local consumers of digital services on whose back the tax burden ultimately falls. Also, doubling the DST rates within 12 months of introduction would be viewed as abuse of unilateral measures affecting global trade, which has recently been of greatest concern in the taxation of the digital economy globally. This would have painted a bad picture of the country besides making it a subject of criticism in the global trade arena.
Perhaps the most controversial proposal in the Finance Bill is the requirement to have taxpayers deposit with the Central Bank of Kenya 50 percent of disputed tax before lodging a tax appeal at the High Court. This move seemed unfair and contrary to the requirements of justice in the least. If passed, taxpayers with cashflow challenges would be denied justice, besides being obviously prejudiced in the face of justice. Thankfully, the National Assembly discarded it and the resolution of tax disputes shall remain guided by the existing guidelines set out in the tax appeals tribunal and other regulations.
The Bill also proposes to delete the supply of maize (corn) flour, cassava flour, wheat or meslin flour by more than ten percent in weight from the list of zero-rated supplies. This is an attempt to clarify the taxability of these food items. These items are currently listed as both exempt and zero-rated for VAT purposes. The zero-rating was introduced in 2020 for only six months to cushion the citizens against the adverse economic effects of Covid-19 but was not reversed at the lapse of this period.
Various excise duty proposed changes were also set aside to assuage the already economically burdened taxpayers in the affected sectors of additional tax burden. Among the proposals dismissed include increase in excise duty on betting as well as the imposition of 15% excise duty on betting advertisements by TV, radio stations and print media on the premise that the sector is already heavily taxed so that increased taxation of the same may fail to yield the expected increase in revenue. Further, with the mushrooming of offshore betting schemes, many consumers of betting and similar products would shift to cross-border service providers, with the resulting loss of tax revenues to the Government as well as a flop in its attempt to discourage consumption.
The proposed increase in excise duty on beers has also been quashed on the grounds that a further increase in liquor prices would give rise to the resurgence of illicit brews, making the measure counterproductive. The proposal to exempt the importation of fertilized poultry eggs from excise tax also did not see the light of day. The Parliament argued that the measure postures to unfairly compete out the very tender local poultry hatchery businesses.
Also rejected were propositions to impose excise duty on the manufacture of glass bottles and the Imposition of 10 percent excise duty on bottled and similarly packaged waters and other non-alcoholic beverages. In defense of the scrapping off of excise duty on local manufacture of glass bottles, the Parliament reasonably argued that this move would hurt local manufacturers who are already struggling to meet the current demands. Furthermore, to protect the environment, there is need to encourage the use of glass over plastic which cannot be favorably attained with increased taxation on glass production.
The Bill was formulated with the objective to raise revenue for the government. However, the urgent need to cushion Kenyans against the pangs of the skyrocketing cost of living as well as providing a conducive business environment superseded the need to increase revenue collection especially using such measures that would ultimately cause more damage than good in the long run. If these changes are accepted, the President would be expected to sign the Bill into law in the course of the month.
