The cost of bread, cooking gas, milk, fishing nets, medical products, fertilizers, mosquito nets and agricultural pest control products will not go up after parliament overturned proposals by the National Treasury that would have seen prices of a host of basic commodities attract taxes.
In a move that will see consumers get a major reprieve from additional taxes, legislators also stopped the Treasury from imposing taxes on animal products such as eggs as well as clean sources of energy like solar panels.
MPs also rejected a proposal to introduce taxes on imported spare parts for helicopters saying that will hurt the recovery of the tourism industry, which is hurting from the shutdowns.
The rejection will come as a major relief to consumers as they deal with the impact of Covid-19 on their pockets. It will, however, hurt the financial position of the National Treasury which was counting on these additional taxes to plug a deficit of about Sh172 billion in the budget.
Legislators said the executive should not use coronavirus to punish farmers and ordinary Kenyans through punitive taxes.
In coming up with the tax amendment bill, Treasury Secretary Ukur Yatani appeared to be giving from one hand and taking it back using the other.
“These are the same things that we removed from the Tax bracket and now the National treasury wants to bring them back,” John Mbadi, the minority leader of the National Assembly, said in a sitting yesterday.
The sitting was extended to allow legislators consider and pass the Tax (Amendment) Bill proposed by President Uhuru Kenyatta aimed at cushioning Kenyans through the economic crisis brought by the Covid-19 pandemic.
“The National Treasury should not think that since we are sitting one’s a week, we are not alert,” Kandara MP Alice Wahome said.
Also spared from additional taxes are investors buying government bonds as well as savings at Postbank.
But it is employees in various companies that should wear the biggest smiles this month with lower Pay as You Earn (PAYE) taken out of their salaries.
By agreeing with the President to reduce the Value Added Tax from the current 30 percent to 25 percent, the move is set to create an additional income of Sh4, 241 monthly for those earnings Sh50, 000 and Sh7,229 for workers on Sh100, 000.
It will also create additional disposable income of Sh9,717 for those earning Sh150,000 and Sh27, 229 for employees earning over Sh500,000 a month.
By the end of this month, workers earning less than Sh24, 000 will be excluded from paying taxes while the minimum income tax rate as they will enjoy 100 percent tax relief. This means that workers in this cadre will have additional disposable income of between Sh1,000 and Sh1,400.
Yesterday the Kenya Revenue Authority(KRA) attempted to stop the party for workers after it asked employers to use the old rates in computing taxes since parliament had not passed the them into law. But this has now been overtaken by events after parliament did their part.
Traders operating small and mid-sized businesses will also now be paying one percent turnover tax on their sales, down from the three percent rate introduced in January. Those with less than Sh500,000 per year have been spared this tax completely after parliament reclassified this to those with turnovers between Sh500,000 and Sh15 million.
The cut in the VAT rate to 14 percent from 16 is also expected to lower the cost of a variety of goods like electricity, sanitisers, detergents, newspapers, processed foods, phones, books, electronics, computer hardware and software.
Food items are however excluded from VAT and the prices will remain unchanged.
President Kenyatta while announcing the tax measures last month said the new tax measures will provide workers with additional income to boost consumption while at the same time ease companies’ and small businesses’ cash flow due to the lowering corporate and turnover taxes.
Corporation tax is what companies pay after making profits.
The coronavirus pandemic has affected tourism which one top income earners for the country while other businesses such as the flower industry has also been hard hit with the outbreak of the virus.
However, the lawmakers did not endorse the Bill in its entirety as they proposed several amendments means to cushion the ordinary person.
The house abolished the proposed taxes levied on basic commodities such as milk, medical products and agricultural pest control products. The products will now be zero-rated.
Finance Committee Chairman Joseph Limo said some of the proposals were touching on the essentials such as bread, milk which the committee pointed out was going to cause more problems to Kenyans had they endorsed the bill in its original form.
“We are aware of the fears of Kenyans and have taken into consideration even as we support the government efforts in raising funds during this time we have also saved fertilizers and all other agricultural products from being taxed more,” Mr Limo said.
Minority leader John Mbadi said there was no way they were going to allow the basic commodities to be taxed more.
“The imposition of tax to bread, milk and other basic commodities was going to affect the ordinary Kenyan,” Mr Mbadi said.
Had the MPs endured the Bill as proposed by President Kenyatta, the cost of bread, milk, cream, cooking gas, fuel, mosquito nets, vaccines and a host of medical products as expected to shoot up as the Bill included excise duty, fees and other charges in computing the taxable value for fuel.
The bill had also introduced VAT on Liquefied Petroleum Gas (LPG).
Treasury had also proposed measures that would further hurt the tourism industry. This is after he Treasury Secretary Ukur Yatani introduced a 14 percent VAT on entry fees to national parks, reserves as well as services of tour operators, excluding in-house supplies –which were tax exempt.
The amendments seek to tax bonuses, overtime and retirement benefits, currently exempted.
Employees whose monthly taxable employment income before bonus and overtime allowances did not exceed Sh12,298 would not be subject to tax.
The 30 percent electricity rebate which was awarded to manufacturers in January 2019 is also now gone. The rebate was good for manufacturers as it reduced their electricity costs.
Even before the passage, the Law Society of Kenya said it will challenge it in court saying the Bill required wide public participation because it has far-reaching implications, including additional tax on goods like fuel, bread, milk and gas.
“We shall not hesitate to challenge this Bill before a constitutional court if it is passed in the current form,” LSK president Nelson Havi said in a petition to Parliament.
Article 118 of the Constitution demands that the public be involved in the process of changing laws, including holding public sittings which may not be achieved now due to the banning of public gatherings by the government.