The Finance Act’s latest proposals have ignited a heated debate among Kenyans, as the government aims to implement significant changes to the tax system. With two key proposals taking center stage – the expansion of taxation bands for high-income earners and the introduction of a 3% housing levy – the implications of these amendments have drawn both support and criticism. Stakeholder bodies like Kenya Association of Manufacturers (KAM), have since voiced fundermantal concerns into the bill, shedding light on the gray areas.

What does the bill propos?

The Finance Act proposes the expansion of taxation bands for individuals earning more than 500,000 Kenyan Shillings (KES) annually. The current tax rate of 30% would increase to 35%, aiming to bridge the revenue gap and promote fairer distribution of the tax burden.

Additionally, the Act introduces a 3% levy on housing, applicable to residential properties valued at 3 million KES and above. This levy aims to generate additional funds for public infrastructure projects and improve housing conditions across the country.

Excise Duty

The proposed bill aims to grant the Kenya Revenue Authority (KRA) the authority to require certain companies in specific industries to make immediate payments of excise duty.

For instance, businesses in the gaming industry will be obligated to remit excise taxes within 24 hours.This proposal is expected to raise compliance costs for businesses, as they will need to establish systems to facilitate real-time payments and accounting for excise duty.

On the positive side, the KRA will benefit from improved liquidity due to the immediate collection of levied taxes.

Cosmetics- duty will now be applicable to various cosmetic products such as human hair, wigs, false beards, eyebrows, eyelashes, and artificial nails, at a rate of five percent.

Additional items subject to excise duty include imported fish, which will be charged at either Sh100,000 per metric ton or 20 percent, powdered juice (20 percent), and imported cement (10 percent of the value or Sh1.50 per kilogram).

Mobile money transfers – Increased excise duty rates will equally affect the mobile money transfer services with  increased rates from 12 percent to 15 percent, potentially resulting in higher charges for mobile money transactions by telecommunication operators.

Who will be affected?

The proposed changes in taxation bands primarily target high-income individuals, including professionals, business owners, and corporate executives. Employees in the manufacturing sector, a significant portion of Kenya’s workforce, are likely to be impacted by the higher tax rate, potentially reducing their disposable income.

The 3% housing levy directly affects property owners, with potential ripple effects on the entire housing market, potentially leading to increased costs for tenants and buyers.

The Kenya Association of Manufacturers (KAM) has voiced its concerns regarding some of the proposed amendments. In a statement, KAM appreciated the government’s support for driving manufacturing sector growth. However, they raised concerns about certain proposals that may hinder this objective.

KAM’s feedback on the Finance Bill includes the following concerns:

1. Impact on competitiveness: KAM questions the philosophy behind imposing levies on imported raw materials, stating it makes Kenya less competitive compared to other East African Community (EAC) partner states. The proposed levies on imports such as clinker, metal products, and packaging paper products may have unintended consequences on the economy.
2. Negative economic and social ramifications: KAM highlights the negative economic and social implications of imposing a 10% levy on imported clinker, which constitutes a significant input for cement production. The proposed levy may lead to job losses and the importation of cheaper finished cement from EAC partner states.
3. Increased costs and reduced competitiveness: KAM expresses concerns about the proposed 10% export levy on imported kraft, used in packaging staple foods. This levy may increase packaging costs and make Kenyan products the most expensive in the region, affecting trade flow and burdening consumers.
4. Potential collapse of the leather sector: KAM is concerned that reducing the export levy on raw hides from 80% to 50% may lead to a shortage of raw hides and skins, impacting tanneries and resulting in job losses and revenue loss for the government.
5. Increased costs and impact on consumers: KAM highlights the potential impact of the proposed 1.5% to 2.5% Import Declaration Fees (IDF) on manufacturers, which would raise importation costs and subsequently increase the price of essential goods, affecting consumers.
6. Unfair deposit requirements: KAM raises concerns about the mandatory deposit of 20% of disputed tax when appealing a Tax Appeals Tribunal (TAT) decision. This requirement may negatively impact businesses’ working capital and cash flow, potentially leading to an unfair administration of justice.

As the Finance Act proposals continue to dominate discussions among Kenyans, its proponents argue that the expanded taxation bands will contribute to a more progressive tax system, ensuring that the burden of financing public services is shared more equitably. They believe that individuals with higher incomes should bear a greater responsibility for supporting the country’s development. The opponents, however, express concerns about the potential negative impact on economic growth and investment. They argue that higher taxes on high-income earners may discourage entrepreneurship, innovation, and job creation, as well as lead to a brain drain of skilled professionals seeking more favorable tax environments elsewhere.