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Uhuru Kenyatta’s new tax measures set to inflict more pain

Thursday September 20 2018

By BRIAN NGUGI
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For 41-year-old Jane Wangeci, a resident of Kibra, Nairobi, the high price of charcoal and kerosene has in the recent past meant changing cooking habits for her young family of four.

“We stopped preparing three meals a day because the cost of charcoal and kerosene has risen beyond our reach,” Ms Wangeci said on Wednesday when the Nation visited her. “It is becoming unbearable.”

The squeeze on low income families like that of Ms Wangeci’s is likely to worsen after President Uhuru Kenyatta introduced new and higher levies on a wider array of goods and services.

The price of kerosene will touch a new high, after Mr Kenyatta proposed a new levy. Kerosene is relied upon by low income homes for lighting and powering cooking stoves, to be charged at the rate of Sh18 per litre of kerosene

The tax will lift kerosene price above the Sh100 per litre mark for the first time and have it retail close to diesel and petrol, which are currently selling at Sh115.4 and Sh125.5 per litre respectively in Nairobi.

M-PESA

Nairobi’s Kariokor-based small-scale trader John Kimani knows too well that he is set for a tougher ride.

This is because the cost of sending money through mobile services such as Safaricom’s M-Pesa is set to increase further after the President proposed to raise tax on the services from 12 percent to 20 percent.

“Excise duty on fees charged for money transfer services by banks, money transfer agencies and other financial service providers shall be 20 percent of their excisable value,” the President said in his memo.

Mobile phone subscribers are also set to pay more for airtime and data services as the government intends to increase excise duty on airtime from the current 10 percent to 15 percent.

“Telephone and internet data services shall be charged excise duty at a rate of 15 percent of their excisable value,” the President recommends.

This means that Sh100 airtime that currently attracts Sh10 tax will now see the Treasury earn an extra Sh5.

HOUSING

The increase in excise duty may prompt telecommunication operators to pass on the burden to subscribers, leading to increased prices. Mr Kimani says he makes about 30 calls a day tracking the sale of his goods to his customers.

Civil servants like 47-year-old Joseph Kamuto, who earns a basic salary of Sh50,000, are also set to dig deeper from their pockets.

Mr Kamuto will be deducted 1.5 percent of his gross pay monthly to create a fund to finance a low-cost housing project after President Kenyatta reinstated the levy that will chop salaries by up to Sh5,000.

Mr Kenyatta’s proposal is higher than the Treasury’s suggestion of 0.5 percent of the gross pay per month matched by employers, which was rejected by MPs last month.

“An employer shall pay to the National Housing Development Fund 1.5 percent of the monthly basic salary,” Mr Kenyatta said in the memo to MPs.

The costs of bank charges like ATM, account fees and over-the-counter withdrawals will also increase after President Kenyatta proposed to double the taxes to 20 percent from the current 10 percent.

COST OF LIVING

On Wednesday, public outrage and disaffection greeted President Kenyatta’s fresh tax proposals.

“The cost of living will go up significantly,” Consumers Federation of Kenya (Cofek) secretary-general Stephen Mutoro said.

“The implications are dire for consumers,” Mr Mutoro said, adding that the President was relying on “wrong advisers”.

Economic analyst Aly-Khan Satchu said the new taxes would cripple ordinary Kenyans.

“The cost of living increases are falling hardest on ordinary Kenyans. In fact, the ordinary Kenyan has been finding themselves worse off practically every year,” Mr Khan said.

“I would have preferred for the VAT to have remained at 16 percent because it was a democratic tax and everyone pays it defined by usage. I am now alarmed that our tax and spend model has run out of road.”

Manufacturers also weighed in on the tax increases and warned Kenya’s business environment is increasingly becoming “cost disadvantaged and a great disincentive for Foreign Direct Investment”.

“The increase in the cost of doing business goes against all the efforts made towards the attainment of the Big Four Agenda and improving the livelihoods of our citizenry,” said the Kenya Association of Manufacturers (KMA) in a statement.

BUSINESS

The lobby singled out the proposal to introduce a special “anti-adulteration” tax of Sh18 per litre of kerosene, which it said will negatively affect the manufacturing sector, particularly paint, resin and shoe polish manufacturers who use kerosene as a raw material.

Kerosene comprises 40 percent raw materials in alkyd resins production.

The lobby also warned that the increase in taxes on money transfer services will raise the cost of doing business as manufacturers and other businesses transfer huge sums of money in their day-to-day operations.

“The increase in overhead costs in communication will further hurt SMEs who at times operate using mobile platforms to cut on fixed costs,” it said.

The Kenya Bankers Association (KBA) chief executive Habil Olaka warned the introduction of the higher taxes on financial services as well as mobile money transfer services will hurt the country’s efforts to promote financial inclusion.

“Financial inclusion drives by the country may be hampered by the fact that if the consumers are feeling that banking services are expensive, they may opt for alternatives,” Mr Olaka said.