New levy lined up for State contractors

The Treasury has introduced a new levy on contractors making supplies to both national and county governments, a shift likely to raise the cost of public procurement.

New regulations published by Treasury Cabinet Secretary Njuguna Ndung’ u show a tax known as capacity building levy would be charged at 0.03 percent of the total value of supplies to State agencies.

“There shall be paid a levy by a supplier on all procurement contracts signed between the supplier and a procuring entity, at the rate of zero point zero three percentum (0.03percent) of the value of the signed contract, exclusive of applicable taxes,” the regulations say.

This means that a contractor in a project valued at Sh1 billion will be levied at Sh300,000. Equally, a business supplying goods worth Sh1 million will be levied Sh300.

“With respect to multi-year procurement contracts, the procuring entity shall ensure that the full amount of the levy is determined on the total procurement contract price and progressively deducted and remitted accordingly,” the regulations published in November say.

The levy shall apply to contracts with part payments or instalments or milestone-based procurement contracts. Local purchase orders and local service orders will also be treated as contracts and be subjected to the levy.

“The purpose of the levy shall be to provide funds for the development of capacity through training, technical support, and mentoring of the persons involved in the public procurement and asset disposal system in order to facilitate achievement of value for money in public procurement and enhance the quality of public service,” the Treasury said.

When the levy was first proposed in August last year, the Association of Public Sector General Suppliers opposed it, saying that capacity building should remain within the ambits of the National Industrial Training Authority (NITA) and not the Public Procurement Regulatory Authority.

“PPRA as mandated should leave capacity building to NITA-accredited as well as Ministry of Education registered institutions,” said the lobby.

Data in the Public Procurement and Information Portal shows that so far, there are 7,554 contracts have been entered by both national and county governments, although not all tenders and contracts are published on this portal.

In the fiscal year 2022/23, state entities entered into 20, 763 contracts, an increase from 11,579 in the previous fiscal year. The overall value of the contracts awarded in 2022/23 was not immediately available although estimates by the Budget Committee of the National Assembly showed that procurement contracts would range between Sh1.45 trillion and Sh1.89 trillion for the financial year.

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