Economy
The local budget deputies had to pass punitive taxes
Friday, June 23, 2023
Cars parked inside the parliament building. file image | NMG
MPs dropped income taxes on their mileage claims, making it the culmination of a list of localities the government is dangling to get them to agree to some painful taxes in the House.
The Treasury also handed MPs Sh1.5 billion, from the First Supplementary Budget for the 2022/23 financial year, as an initial fund to put up 100 homes per constituency, even as opposition to the controversial housing fund that has since been diverted into a levy has raged.
Members of Parliament were tasked with identifying public lands in their constituencies where these homes would be established.
Lawmakers are also pushing, with the support of President William Ruto’s administration, two bills that will ensure they retain the NIS 44 billion National Government Constituency Development Fund (NG-CDF).
A Supreme Court ruling last year found that the 2013 CDF Act violated the principle of separation of powers.
The ruling was a huge blow to them given that the fund gave MPs control over grassroots projects and was a key tool for their re-election.
is reading: Members of Parliament pay up to 40,000 Kenyan shillings as a meeting, and reduce travel privileges
By lowering taxes on mileage, MPs will get a cushion from expected pay cuts from the new 35 per cent tax band that will affect high earners from next month.
The Finance Bill 2023, which passed despite spirited fighting by opposition MPs, will give the government more than Ksh200 billion in additional taxes.
He’s carrying a slew of tax changes that will hit consumers hard, chief among them doubling the value-added tax on fuel to 16 percent.
The bill also added two levels of income taxes of 32.5 percent for incomes between Sh50,000 and Sh800,000 a month, and 35 percent for those earning more than Sh800,000 a month.
For Kenyans earning NIS 800,000 per month, their new 32.5 per cent group will pay Kshs 242,283 in total before relief, up from Shs 234,783 previously.
For those earning Sh1 million, the tax liability rises to Sh312,283, from Sh294,783, due to the two additional PAYE bands on their salaries.
is reading: Mixed bag for taxpayers in 51 Bill Finance Change
These directly affect MPs, who receive a base salary of Sh710,000 plus various allowances which can bring the package take home into the Sh1 million range.
One such allowance is the mileage claim, which under an amendment to the Income Tax Act will make it tax-free for those traveling on official duties, based on the standard rate published by the Kenya Automobile Association (AA).
“The proposed change reaffirms the practice of excluding mileage and travel payments from employment tax, and also strengthens the limits within which these benefits can be extended,” tax experts at consultancy KPMG Kenya said in their analysis of the Finance Act.
This relief would effectively reduce MPs’ exposure to the highest income tax rates – by reducing the proportion of their paychecks that attract the higher rate income tax.
Legislators collectively demand millions of miles per year at a rate of 116.63 shillings per kilometre, via a system defined on the basis of distance traveled.
A newspaper notice by the Salary and Remuneration Commission (SRC) dated July 2022 set the limit for ‘Zone 1’ at 350km from Parliament, with a maximum of 700km per week being claimed. This will cover areas such as Nairobi, Nakuru, Machakos and Kiambu.
In this region, legislators can claim a maximum of Sh353,778 per month on mileage redemption.
Zone 2 claims cover a minimum distance of 351 kilometers, and the return trip is based on actual distance traveled. The maximum amount that can be claimed also depends on the actual distance.
President Ruto, while addressing the joint inaugural session of the 13th Parliament last September, urged MPs to take measures to protect the CDF by aligning it with the constitution, and to establish a supervisory fund for senators to monitor cash transfers to the provinces.
This intervention by the president underlined the importance of the fund to lawmakers, who were told by the Treasury Department a week ago that it would not allocate money to the fund in line with the Supreme Court ruling. Currently, the law allocates 2.5 percent of the total revenue raised nationally for distribution among constituencies.
One of the two bills before the House of Representatives is the Constitution of Kenya (Amendment), 2022, which seeks to anchor the NG-CDF in the Constitution. In November, MPs threatened to block government business in the House if there were persistent delays in releasing CDF funds, prompting the Treasury to propose a phased release of the funds, subject to approval by the Attorney General.
→ (email protected)