The Treasury has removed the Sh100,000 cap on the proposed car tax as it seeks to raise an additional Sh346.7 billion from the new tax measures in the next financial year, even as mobile money users avoid higher toll charges on motor vehicles. the cars. Transactions.
In his budget speech on Thursday, Treasury Minister Njuguna Ndung'u remained silent on the upper limit of the tax, but stressed that the minimum amount to be charged would still be Sh5,000.
The cap of Sh100,000 was seen as appropriate for owners of expensive cars worth more than Sh4 million, the price at which the 2.5 percent tax crosses the Sh100,000 mark. The revenue boost, which the Treasury hopes will halve the fiscal deficit and reduce reliance on debt, is backed by higher taxes and a tough crackdown on tax cheating amid protests from labor, church and industry groups over high fees.
The 2024 budget targets Sh2.917 trillion in tax revenue for the year starting July 1, 2024, up from Sh2.452 trillion in the current year – according to the latest available Treasury documents – which includes Sh426 billion in ministerial allocations. The aid (AIA) will make up the bulk of the funding for the Sh3.992 trillion budget.
However, the Treasury Secretary provided relief for mobile money users after scrapping a proposal in the Finance Bill to increase the excise duty on M-Pesa remittance fees to 20 percent from 15 percent.
This decline came in the wake of statements made by Safaricom and other telecommunications companies that the increase would harm financial inclusion and open the door to black market money transfer options, harming efforts to expand the tax net.
But he maintained the proposal to raise fees to 20% on fees charged for bank cash transfers, airtime and data purchases.
Other tax measures include a proposed increase in taxes on bread, edible oils, renewable energy solutions, alcohol and cigarettes. An environmental levy targeting goods deemed harmful to the environment and ranging from Sh98 to Sh275 per item will also be imposed on goods such as mobile phones, televisions and batteries.
“I propose to impose an annual tax on motor vehicles at the rate of 2.5 percent of the value of the vehicle subject to a minimum of Sh5,000 per annum,” Professor Ndongo said, without specifying a maximum as was the case in the Finance Bill under consideration by the MPs. “I propose to maintain the 15% excise tax rate on fees charged on money transfer services by cellular phone service providers for the benefit of the retail electronic payments ecosystem.”
The new tax measures include imposing a value-added tax on bread and financial services provided by banks and insurance companies, a 25% excise duty on cooking oil, increasing duties on alcohol and cigarettes, and increasing taxes on non-resident companies operating in Kenya. To raise additional taxes, the minister wants to give KRA an additional Sh12.4 billion to go after tax evaders, while also making it more difficult for those on the agency's radar to fight tax claims.
In the Finance Bill, the Treasury proposed that the KRA retain 20 percent of the revenue it collects as import declaration fees (IDF), allowing the agency to hire more enforcement staff and upgrade its technological capacity.
The government is targeting Sh60.7 billion in the IDF in the next financial year – partly by boosting the rate from 2.5 to 3.0 percent – meaning that if KRA achieves the target, it will be entitled to Sh12.4 billion.
The bill also seeks a waiver for the KRA under the Data Protection Act 2019 to allow the agency to access taxpayer data from processors, including banks, telecom companies, utilities, property registries and schools, without the need for a court order.
The draft law wants these data processor systems to be integrated with the KRA's digital e-tax system. The plan to give KRA unrestricted access to taxpayers' financial data has been criticized by legal experts, led by the Law Society of Kenya (LSK).
Companies and individuals facing tax claims from the KRA will also be subject to stricter rules when appealing tax claims. The bill has reduced the period to provide information requested by KRA during an objection hearing to seven days from 30 days. It also increases the period the taxman can use to determine an objection from 60 to 90 days.
The tax changes are expected to increase collections from indirect taxes by Sh111 billion to Sh401.1 billion, income taxes by Sh232.1 billion to Sh1.33 trillion, and value-added tax by Sh150 billion to Sh804.7 billion in the 2024/25 financial year. .
In his budget speech, the Treasury Secretary said generating higher revenues through these tax measures would help the government reduce its fiscal deficit to Sh597 billion, equivalent to 3.3 percent of GDP, from Sh925 billion (5.6 percent) in the year. Present.
Total projected revenues – which include taxes, AiA and grants – are set at Sh3.343 trillion, against a targeted spending of Sh3.992 trillion, with the resulting deficit financed by Sh597 million from borrowing and Sh51.8 billion through grants. From external partners.
To finance the net deficit, the Treasury will borrow a net Sh333.8 billion from external lenders, and Sh263.2 billion from the domestic market.
As for the domestic borrowing target, this represents a sharp decline from the Sh589 billion the government is taking in this year.
In contrast to the high revenue expectations, the budget shows a slowdown in expenditure growth compared to previous years.
In the 2023/2024 financial year, the country's spending stands at Sh3.84 trillion, meaning next year's budget expands by Sh152 billion. In comparison, the budget expanded by Sh620 billion between 2022 and 2023.
Kenya's belt-tightening efforts come in the face of mounting pressure on the treasury to tame the growth and cost of public debt, which doubled to Sh10.4 trillion by the end of March from Sh5.42 trillion five years ago.
By reducing its appetite for domestic borrowing, which is blamed for crowding out the private sector from the market, the Treasury hopes to tame high domestic borrowing rates and boost economic growth by getting banks to lend to the private sector.