MPs have proposed an increase in fuel, import and railway development duties as well as an increase in tariffs on gambling to compensate for the abandonment of a range of controversial taxes on bread and cars in this year's Finance Bill.
The National Assembly Finance and Planning Committee’s proposal will give the Treasury a soft landing from the potential revenue loss worth billions of shillings due to the reversal of new and enhanced tax measures.
The canceled measures include imposing a 16 percent value-added tax on bread, a 2.5 percent annual car tax that was scheduled to be imposed on insurance, in addition to imposing a higher indirect tax on cash transfers and imported sweets.
The proposed tax on goods that degrade the environment will also be amended so that it applies only to imported goods to encourage local manufacturing and eliminate high duties on cooking oil, motorcycles and agricultural pest control manufacturing inputs.
Instead, the committee, chaired by MP Mulu Kuria Kimani, wants the Treasury to raise the Import Declaration Duty (IDF) to 3.5% from 2.5%, citing the need to reverse a loss of Sh10 billion annually as a result of last year's cut. In the fee to 2.5 percent from three percent.
“The proposed increase in the IDF to 3.5 per cent will therefore help restore the performance of this tax chief in line with the projected budget estimates for the 2024/25 financial year,” Mr Kimani said.
“To help raise adequate funds for road maintenance and repair across the country, the Committee recommends an increase in the (Road Maintenance) Levy in accordance with Section 3 of the Road Maintenance Levy Fund Act.”
The committee supports the request made to MPs last week by Cabinet Secretary for Roads and Transport Kipchumba Murkomen to raise the tax from the current Sh18 to Sh25 per liter of fuel. Mr Murkomen told MPs the tax increase would take its total to Sh115 billion annually, up from the current Sh84 billion.
The Ministry of Roads and Transport also said the tax has not been reviewed since 2017, despite the increase in petroleum fuel prices per liter in Kenya over the years.
The committee also called on the Treasury to raise the Rail Development Levy (RDL) from the current 2.5 percent, adding that the additional funds raised should go towards developing the electric light rail system in Nairobi. In the 2022/2023 financial year, RDL collected Sh29.64 billion, according to treasury disclosures.
The Finance Committee also supports increasing betting duties and imposing an export and investment promotion tax on leather products, imported shoes, denatured ethyl alcohol, ceramic sinks, wash basins and fully-built imported motorcycles to boost revenues.
Key tax proposals in the finance bill were dropped after a Tuesday morning meeting between lawmakers from Kenya's ruling Kwanzaa coalition and President William Ruto in a day of public protests that saw hundreds of picketers arrested.
Dr Ruto last month defended the proposed taxes, saying the country should be financially self-sufficient. On Tuesday, the president did not speak or interact during the press conference announcing the shift.
Since taking office in 2022, Dr Ruto has imposed several unpopular new taxes aimed at easing pressure on the country's national public debt.
But critics of the unpopular tax fear it will stifle economic growth and lead to job losses.
The committee said the revenue target for the next financial year remains at Sh3.343 trillion, which was set by Treasury Minister Njuguna Ndung'u in his budget speech last week.
This means that the Committee expects the enhanced taxes to fully cover the expected loss in revenue from the Finance Bill's deleted provisions.
Failure to raise replacement revenues would have left the Treasury facing a larger budget deficit than the Sh597 billion mentioned in the budget, forcing it to increase its borrowing at a time when it is under pressure to cut public debt spending and free up funds for development. Spending.
The committee now expects the Finance Bill to collect an additional Sh302 billion in taxes in the 2024/25 financial year. Meanwhile, Professor Ndongo in his budget speech said regular revenues would rise by Sh346.7 billion, but his total includes both the Finance Bill and Customs Measures which are not under consideration by the committee.
The 2024 budget targets Sh2.917 trillion in tax revenue, up from Sh2.452 trillion in the current year – according to the latest available Treasury documents – which along with Sh426 billion in ministerial appropriations in aid will make up the bulk of the budget. Funding its Sh3.992 trillion budget.
In addition to the direct tax measures in the Finance Bill, the revenue increase was also expected to be driven by enhanced administrative measures at the Kenya Revenue Authority (KRA), including a tax holiday for access to taxpayer data from processors such as banks and telcos. Utilities, real estate records, and schools without the need for a court order.
However, the Finance Committee rejected the proposal as unconstitutional and said that Section 51 of the Data Protection Act sets out the circumstances under which exemptions may apply.
Lawmakers are scheduled to discuss the bill starting Wednesday, and a vote on it is scheduled for Monday.