Workers win big with less tax, cheaper food

Legislators scrapped proposed taxes levied on basic commodities such as bread and milk. PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

  • Traders operating small and mid-sized businesses will now be paying one per cent in turnover tax on their sales, down from the three per cent rate introduced in January.
  • Minority Leader John Mbadi said there was no way they would have allowed basic commodities to be taxed more.

The cost of bread, milk, medical products and agricultural pest control products will not increase after Parliament overturned Treasury's proposals that would have seen some prices of basic commodities attract taxes.

Importers of helicopters and their spare parts have also been spared additional taxes after MPs on Wednesday passed the Tax (Amendment) Bill proposed by President Uhuru Kenyatta. The bill is awaiting his signature.

But it is people in formal employment who should wear the biggest smiles this month, as lower Pay As You Earn (PAYE) taxes will be taken out of their salaries.

By agreeing with the president to reduce PAYE from the current 30 per cent to 25 per cent, the move will leave Sh4,241 monthly in the earnings of a person making Sh50,000 and Sh7,229 for workers making Sh100,000.

It will also create additional disposable income of Sh9,717 for those earning Sh150,000 and Sh27,229 for employees earning over Sh500,000 a month.

At the end of this month, workers earning less than Sh24,000 will be excluded from paying taxes as they will enjoy 100 per cent tax relief.

This means that workers in this cadre will have additional disposable income of between Sh1,000 and Sh1,400.

BOOSTING CONSUMPTION

Traders operating small and mid-sized businesses will now be paying one per cent in turnover tax on their sales, down from the three per cent rate introduced in January.

Traders earning less than Sh500,000 per year have been spared this tax completely after Parliament reclassified this to those with turnover between Sh500,000 and Sh15 million.

The cut in the VAT rate to 14 per cent from 16 per cent is also expected to lower the cost of a variety of goods like electricity, sanitisers, detergents, newspapers, processed foods, phones, books, electronics, computer hardware and software.

President Kenyatta last month announced the new tax measures, saying they will provide workers with additional income to boost consumption while at the same time easing cash-flow issues for big companies and small businesses. Corporation tax is what companies pay after making profits.

The coronavirus pandemic has hurt tourism, one of the top income earners for the country, and other industries such as cut flowers.

But lawmakers did not endorse the bill in its entirety, as they proposed several amendments meant to cushion ordinary people.

The House abolished the proposed taxes levied on basic commodities such as milk, medical products and agricultural pest control products. The products will now be zero-rated.

SAFEGUARD WANJIKU

Finance Committee chairman Joseph Limo said some of the proposals touched on essentials such as bread and milk, which the committee pointed out would affect the cost of living.

“We are aware of the fears of Kenyans and have taken into consideration even as we support the government’s efforts to raise funds during this time. We have also saved fertilisers and all other agricultural products from being taxed more,” Mr Limo said.

Minority Leader John Mbadi said there was no way they would have allowed basic commodities to be taxed more.

“The imposition of tax on bread, milk and other basic commodities was going to affect the ordinary Kenyan,” Mr Mbadi said.

Had MPs endorsed the bill as proposed by President Kenyatta, the cost of bread, milk, cream, cooking gas, fuel, mosquito nets, vaccines and a host of medical products was expected to shoot up as the bill included excise duty, fees and other charges in computing the taxable value for fuel.

The bill also introduced VAT on liquefied petroleum gas (LPG). Treasury had also proposed measures that would have further hurt the tourism industry.

This is after Treasury Cabinet Secretary Ukur Yatani introduced 14 per cent VAT on entry fees to national parks and reserves, and services, excluding in-house supplies, which were tax-exempt.

PUBLIC PARTICIPATION

The amendments seek to tax bonuses, overtime and retirement benefits, which are now exempted.

Employees whose monthly taxable income before bonus and overtime allowances did not exceed Sh12,298 would not be subject to tax.

The 30 per cent electricity rebate awarded to manufacturers in January 2019 is also now gone. The rebate was good for manufacturers as it reduced their electricity costs.

Even before passage of the bill, the Law Society of Kenya had indicated that it would challenge it in court, saying the proposals required wide public participation because they have far-reaching implications, including additional tax on goods like fuel, bread, milk and gas.

“We shall not hesitate to challenge this bill before a constitutional court if it is passed in the current form,” LSK President Nelson Havi said in a petition to Parliament.

Article 118 of the Constitution demands that the public be involved in the process of changing laws, including holding public sittings, which may not be achieved now because of the ban on public gatherings.