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Holding the Finance Bill hostage to a plethora of amendments defeatist

Tuesday January 3 2012



With Parliament having gone on recess before passing the Finance Bill, pundits were predicting the situation would plunge government financial operations into a mess.

If the Finance Bill is not enacted into law, the government must refund taxes and duties collected after the expiry of the Provisional Collection of Taxes Order 2011, for the period January to June 2012.

Yet the truth of the matter is that things are not as bad as the predictions. In the first place, the government can keep extending the 2011 collection and taxes order until the Bill is passed.

Even in the worst case scenario, should Parliament flatly refuse to pass the Finance Bill, the revenue at risk is a small percentage of total tax revenues.

If you scrutinise this year’s Finance Bill, you will realise a good proportion of the decision-making on tax collection is agreed on at the East Africa Community level. The Finance Bill contains very little.

Furthermore, Finance minister Uhuru Kenyatta’s budget for the current financial year proposed no major changes either on VAT or on income tax levels. The only exception were changes in excise duty.

Thus, even in the event that the government was to refund taxes, the claims will mainly be in respect to excise duty. But how do you refund excise duty considering that this tax is passed on to the consumer? Cigarette manufacturers cannot be refunded.

If the worst comes to the worst, and in the event Parliament does not pass this year’s Finance Bill, I will go to all entertainment spots I visited during the New Year celebrations, collect all the receipts for the copius quantities of alcohol I consumed, hand them over to Uhuru, and demand excise duty refunds.

I will encourage my smoker friend to count all the single cigarettes he has purchased from the kiosk in the month of January and lodge an excise duty refunds claim with the Treasury. 

Is it likely that this matter will get to this point of seeking refunds? I don’t think so. I gather from rumours that Mr Kenyatta has hammered a deal with MPs to make it possible for the Finance Bill to be passed by January 15.

Whether the initiative by Mr Kenyatta will succeed remains to be seen. But the controversy over delays in the passage of the Bill has raised major policy issues when it comes to Parliament’s role and responsibility in the area of economic legislation.

You can’t change economic policy by ambushing the Executive.  Indeed, there is a limit to what one can achieve by introducing hurriedly drafted laws conceived on the basis of popular obsessions, without looking at the effects on the broader macro-economy.

In the current case, we woke up one day to find that Gem MP Jakoyo Midiwo was seeking to introduce interest rates caps right bang in the middle of discussions on the Finance Bill which was at the committee stage. 

The Finance Bill is about collecting taxes. Period.  If Mr Midiwo wants to introduce interest rate controls, let him introduce a substantive Bill, circulate it to stakeholders and the public for debate, and then table it in Parliament.

As Mr Midiwo sought to introduce the amendments, a substantive Bill introduced by Rangwe MP Martin Ogindo, also seeking to control interest rates was pending in the House, having gone through the first reading.

It would appear that Mr Ogindo changed tactics along the way. He sought to introduce changes to regulation of controls on petroleum prices.

All these changes in economic policy were to come in through amendments to the Finance Bill, and all were introduced at the committee stage.

This is the genesis of the controversy seen as the year ended without legal instruments to support the collection of taxes.

Parliament must continue to play a role in reviewing economic policy. But MPs must separate what is popular from what makes economic sense.

A few years ago, we introduced with great pomp and fanfare, a price controls regime for petroleum products, complete with a formula for adjusting prices in line with changes in the international marketplace. It has failed miserably.

Last year, Parliament appointed a committee headed by Budalang’i MP Ababu Namwamba to investigate the frequent increases in the prices of goods and services. The committee concluded that price controls were unworkable.