New taxes as government seeks money to pay teachers, doctors

Under pressure to raise additional taxes to pay for the ballooning wage bill, the government has surprised the country with a list of new taxes.

Under a new tax proposal filed in parliament on Thursday, Finance minister Njeru Githae targets the multibillion mobile money transfer services and the usual culprit, alcohol, with a proposal to increase excise duty on beer to 50 per cent from 40 per cent.

Treasury is proposing a 10 per cent tax to mobile money transfer services.

“Excise duty on fees charged for money transfer services by cellular phone service providers, banks, money transfer agencies and other financial service providers shall be ten per cent,” reads the new tax proposals tabled before parliament on Thursday.

The new tax measures are contained in an amendment to the Finance Bill 2012 tabled in the House late on Thursday just as MPs got ready to take a break until November 20 this year.

Mobile operators are expected to be the worst hit by these measures given that they are using mobile money as a value addition tool and a competitive advantage.

“A tax of 10 per cent is difficult to absorb as a new cost and this could force operators to pass it to consumers. The implication of this is that it will slow down the financial deepening of the sector,” an industry insider told the Nation in an interview.

Mr Githae has also proposed to impose a ten per cent excise duty on all the other fees charged by financial institutions.

After failing to tax alcohol using the retail price, Treasury has resorted to increase the excise duty from 40 per cent to 50 per cent of the factory price.

“It has been very difficult to determine what has been the retail selling price. Some hotels have been selling alcohol at Sh200, while others sell at Sh70, we can’t determine the price. We want to go back to the ex-factory price. The tax will now be Sh70 or 50 per cent of the ex-factory price,” said Mr Githae.

Treasury is also proposing to raid the lucrative prospecting industry by imposing a 20 per cent tax on the proceeds from sale of property or shares, in respect of oil companies, mining companies or mineral prospecting of the gross amount payable.

There’s also the heavy taxation of raw hides and skins, which the minister said, will encourage value addition.

This comes at a time when the government is facing increasing pressure to increase its revenue base to deal with the demands of the new constitution and a ballooning wage bill in the public sector.

The Kenya Revenue Authority (KRA) has a revenue target of Sh870.5 billion this year, a 23 per cent increase over last year’s Sh707.4 billion.

The taxman is also targeting landlords, who have for years avoided paying tax on rental income, to boost its collection as well as putting churches on notice over the same.

KRA has also set up a special unit to track down rich tax cheats arguing that the number of rich Kenyans flaunting their wealth in the form of multi-million shilling purchases has been on the rise with no corresponding increase in income tax.

The taxman expects the bulk of revenues (44 per cent) to come from income taxes with Value Added Tax coming in second at 27 per cent.

Excise duty contributes 10 per cent of the total, import duty at eight per cent, investment income at two per cent while other taxes are expected to contribute nine per cent to the kitty.

The proposals were approved by Parliament.