Taxes go up, more money for security

Motorists, and by extension the public, will pay more to meet transport costs after the National Treasury increased taxes on fuel to raise more revenue to fund the Sh2.1 trillion Budget unveiled Thursday.

Also caught in the expanded tax bracket are beer drinkers, smokers, landlords and manufactures of plastic packaging materials.

However, the youth, filmmakers, manufacturers, teachers and security agencies were among the biggest beneficiaries of the tax and policy measures announced by National Treasury Cabinet Secretary Henry Rotich as he detailed ways to raise Sh1.3 trillion from tax revenue. The balance of the expenditure outlay of about Sh800 billion will be raised from borrowing and donor funding.

Vehicle owners were slapped with an additional Sh3 per litre tax in what Mr Rotich said was meant to raise funds to “further scale up the existing road network to be collected and paid into the Road Annuity Fund”.

“The increase will result in a knock-on effect on the economy, bringing inflationary effects affecting all Kenyans,” said Mr Gabriel Ouko, the Deloitte East Africa director for infrastructure and capital projects. The levy now stands at Sh12 per litre. “This coupled with the recent increase of 1.5 per cent by the MPC is bound to have adverse effects on the economy.”

On Tuesday, Central Bank increased benchmark rate to 10 per cent to support the shilling against the dollar, a move that will see banks increase lending rates, and by extension, the cost of goods.

Beer drinkers and smokers will have to wait for the new law on excise duty to know how much more they will be paying to enjoy their favourite indulgences with Mr Rotich saying the new tax measure will “raise additional revenue amounting to about Sh25 billion.”

PLASTIC BAGS

Manufacturers and users of plastic paper bags will also bear an enhanced tax on non-biodegradable plastic which now stands at Sh120 per kilogramme.

Landlords with rental income of below Sh10 million annually will not have benefit of deducting expenses incurred in running and maintaining houses as they will now be slapped with a new 12 per cent tax on gross rental income.

Landlords who have not been complying in paying taxes will, however, have a reprieve after they were offered a tax amnesty.

“In this respect, landlords with tax arrears are advised to prepare to engage the Kenya Revenue Authority (KRA) to clean their tax records,” Mr Rotich told MPs.

On the list of winners, the youth ranks top with various measures announced to create employment and business opportunities.

The National Youth Service was allocated Sh25 billion while government agencies will now required to send a quarterly report on compliance with the 30 per cent rule on awarding contracts to youth and women. 

Companies offering internships will be allowed to deduct money spent on the fresh graduates on condition that such a companies “engage and train at least 10 fresh graduates for a period of six months to 12 months.”

The film industry, which carries a big potential for youth employment, was also a big beneficiary.

“I propose to exempt from withholding tax all payments made by foreign film producers to actors and crew members. In addition, VAT in respect of goods and services purchased for use in film-making will be exempt,” Mr Rotich said.

FARMERS

Farmers will also benefit from subsidies on imported inputs such as fertiliser in a Sh3 billion allocation.

Local manufacturers and enterprises will also benefit from the directive that ministries, agencies and departments should adhere to at least 40 per cent minimum content while procuring goods and services. There was also a raft of measures to cushion them from cheap imports.

Elimination of the five per cent tax on capital gains arising from sale of shares and introduction of a 0.3 per cent withholding tax on the transaction value of the shares will also come as a reprieve for investors and stockbrokers. Investors will pay less while stockbrokers will have an easier time calculating the tax.

To eliminate corruption and improve the business environment, imports and exports will be processed through the Kenya National Electronic Single Window System aimed at cutting on lengthy and manual paper work, enhancing transparency, accountability and raising government revenues.

Wananchi were also offered an opportunity to invest in government securities with as little as Sh3,000 through their mobile phones, down from a minimum of Sh50,000.

A total of Sh21 billion has also been set aside to extend electricity transmission to at least one million Kenyans this financial year.

While banks won on withdrawal of the need to apply for an annual licence for a perpetual license based on their compliance rate, small banks face a bleak future with the requirement that the minimum core capital be progressively increased from the current Sh1.0 billion to Sh5.0 billion by December 2018.

The Kenya Revenue Authority will now be required to pay traders making VAT refund claims within 12 months on filing such claims.