Kenya: Taxes MPs approved in changes to Finance Bill

Kenya's President Uhuru Kenyatta is expected to sign the Finance Bill 2022 after lawmakers approved tax measures aimed at raising the 3.3 trillion Kenyan Shillings budget. The Treasury, through the Finance Bill, seeks to generate at least 51.6 billion Kenyan Shillings in revenue to finance the budget for the financial year starting on July 1st. The annual Finance Bill typically contains proposals on how to raise revenue to finance the budget for the year. This year, the Finance Bill was tabled early by the Cabinet Secretary for Finance due to pending elections. The bill included various proposals such as an increase in excise duty on multiple cycles, requiring taxpayers to pay 50% upfront in case of disputes with the tax collector, and an increase in digital service taxes. However, parliament rejected some proposals, such as the 50% upfront payment rule and raising excise duty on common goods like maize flour, citing concerns about the cost of living. On the other hand, the approved measure to increase digital taxes by 20% moving forward was welcomed. Additionally, the bill included provisions to reduce the cost of inputs into manufacturing. Speaking on the impact of the increased digital tax, Odhiambo Ramogi, CEO of Elim Capital, expressed concerns about its potential to stifle innovation and growth in the digital space. He highlighted challenges in enforcing these taxes, especially on global platforms like Uber and Alipay. These tax measures may also have implications on Kenya's bilateral talks with the US, particularly in sectors like textiles, leather, drugs, equipment, energy, and security. Ramogi believed that the talks would resume post the upcoming elections in August. Despite the aim of the tax measures to bridge the 846 billion Kenyan Shillings gap in the budget, uncertainties remain amid the election period and potential impacts on the private sector. Ramogi noted that budgetary statements in East Africa often fall short of implementation due to delays in financing, changes in priorities, and tax collection challenges. While achieving the budgetary targets is plausible with aggressive measures, issues like tax exemptions and powerful friends influencing government decisions pose significant hurdles to revenue collection.