The Treasury presented a worst-case scenario if the entire finance bill is rejected in the National Assembly, warning of major spending cuts in a forced shake-up of the government's spending plans.
According to the Treasury, rejecting the bill would open a Sh200 billion revenue gap, leading to cuts of the same size, which would impact key expenditures, including school feeding, cash transfers to the poor, and recruitment of medical trainees.
“If the revenue measures received are not approved by the National Assembly, there will likely be a revenue shortfall of about Sh200 billion,” Professor Ndongo said.
Representatives can reject the entire finance bill at one of the second and third reading stages.
However, MPs passed the bill and accompanying report to the Finance and National Planning Committee on second reading on Thursday, moving the tax proposals to the next stage of approval.
Representatives can still reject the bill in the next stage known as a full House committee where lawmakers can stop a third reading of the bill after considering proposed changes on a clause-by-clause basis.
According to the Kenya Law Reform Commission, postponing a bill, usually for a minimum of six months, is technically “killing the bill.”
The government will be asked to reintroduce the Finance Bill after six months with new provisions, which will be different from the proposals submitted.
But even without a new fiscal bill, the government will still have ways to raise revenues as represented by the tax laws and regulations already in place.
“Our position has always been the same – that there is no indication that we have to have a new Finance Bill every year. No gap will emerge from the rejection of the Bill as the previous Finance Act 2023 and other tax laws will continue to operate. In case Rejection, the government will have to rewrite the draft law, come up with new provisions, and start the process of converting it into law from the beginning, the Institute of Economic Affairs said The daily business.
However, the government will find itself unable to legislate a new appropriations law, the written law that directs spending in the absence of a finance law.
This follows a Supreme Court ruling last year that held that revenue collection measures must be approved first before an appropriations bill is presented to the House of Representatives.
In such a scenario, the government would only be able to reach about half of the currently approved spending estimates in the absence of an appropriations law.
While the government may have to abandon new tax measures that are set to generate Sh302 billion in additional tax measures and are likely to lead to higher borrowing to meet spending plans, the Treasury can still raise taxes through improved efficiency in collections and expansion in spending. Number of taxpayers.
“Nothing indicates that the Treasury cannot generate higher revenues even without the new tax proposals in place from improving efficiency in tax collection, expanding the tax base, and even from higher consumption in the economy,” Ms. Kagome added.
The government traditionally proposes new tax measures every year to support annual spending plans, making the debate over the Finance Bill a topic of regular discourse.
The 2024 Finance Bill is now expected to enter the committee stage next week during which amendments will be considered and voted on on a clause-by-clause basis.
The Finance and National Planning Committee introduced amendments to the bill as introduced by the Treasury, including the abolition of the 2.5 per cent motor vehicle circulation tax and the value-added tax on bread.
But instead, the committee headed by Kuria Kimani recommended raising the fuel tax from Sh18 to Sh25 per liter as part of interventions to recover the waived taxes.
MPs can still reject the bill by postponing or canceling its third reading after the committee stage report.