President Uhuru Kenyatta yesterday signed the Finance Bill, 2018 into law, a move that introduced a bundle of new taxes that will see consumers pay more for various goods and services, including bank transactions.
Excise duty on charges levied by banks, insurance firms and other financial institutions, has doubled to 20 per cent from the previous 10 per cent, while the tax on mobile calls and data rose to 15 per cent from the previous 10 per cent.
This means that consumers will pay more for mobile phone calls, use of internet and services offered by financial institutions such as cash withdrawals at ATMs.
Calling charges have been dropping over the long term but the new excise tax means they will now go up, a move likely to hurt the poor the most because they buy airtime in low denominations.
Similarly, the special “anti-adulteration” tax introduced at the rate of Sh18 per litre of kerosene has raised the price of the commodity above that of diesel. The fuel is used by low-income households for cooking and lighting. From, yesterday the price rose to Sh108.4 per litre in Nairobi. This saw it become more expensive than diesel which retails at Sh108.1 per litre and narrowed the gap with petrol which will now be sold at Sh116.7 per litre. However, both diesel and petrol will now benefit from the halving of the VAT from 16 to eight per cent.
This is the first time in Kenya's history that the price of kerosene has crossed the Sh100 per litre mark.
“Price difference between kerosene and diesel is the main motivation for fuel adulteration. In order to eliminate this vice, there is need to harmonise the price of kerosene to that of diesel by introducing an anti-adulteration levy,” Mr Kenyatta said in his memorandum to Parliament.
Slapping VAT on petroleum products, which has led to an increase in transport costs, is expected to cause a general rise in inflation levels. However, the new tax was expected to generate Sh35 billion in the fiscal year ending June 2019. The levy, whose collection started this month, is now expected to rake in half the amount at the new rate of eight per cent.
Employees in the formal sector will also start contributing to the National Housing Development Fund (NHDF) at a rate 1.5 per cent of their gross pay and which will be matched by their employers. The maximum contribution per employee, to be paid by those earning a basic salary of Sh166,000 and above, is set at Sh2,500.
Besides the new tax measures, the government slashed its original Sh3.02 trillion Budget in the current fiscal year by Sh37.6 billion, with recurrent spending dropping by Sh9 billion and capital expenditure falling by Sh28.5 billion.
For consumers, the changes bring additional pain after the president declined to make even deeper budget cuts to ease the burden on ordinary wananchi as demanded by a section of parliamentarians.
In his memo, Mr Kenyatta laid emphasis on generating more revenues from consumption taxes, saying that the measures are a continuation of the tax reforms which the country has been undertaking in recent years.
“VAT on the petroleum products is supposed to supplement domestic revenue mobilisation. This revenue mobilisation will enable the country fund most of the infrastructure projects,” Mr Kenyatta said. “The vatability of the petroleum products will limit exemptions and make our VAT system more efficient and productive be reducing or eliminating revenue leakages.”
He also pledged prudent management of tax revenues in the wake of protests that large chunks of public funds are lost to corruption.