Your ‘punitive’ tax plan will not pass, Raila tells Ruto in new battlefront

Opposition leader Raila Odinga has asked the National Assembly to reject “punitive” taxation measures contained in the Finance Bill, 2023, saying, they will escalate the cost of living and hurt the economy.

Mr Odinga, who spoke at the Jaramogi Oginga Odinga Foundation in Nairobi’s Upper Hill neighbourhood yesterday, also condemned workers’ unions for remaining quiet amid the plans.

The Azimio la Umoja One Kenya Coalition Party leader singled out increased in Value Added Tax (VAT) on maize flour and pharmaceutical products, enhanced duty on imported cement and imposition of turnover tax on small businesses.

He further cited the Income Tax Adjustment pegged at 35 per cent on those earning Sh500,000 a month as well as the three percent deduction on salaries to support the Housing Fund, 15 per cent tax on digital content creators, taxation of per diems at the rate of 30 per cent and tax on beauty products.

“We wish to make it clear from the outset that, as a party, we will try our best to ensure that this anti-people budget is not passed by the National Assembly,” said Mr Odinga.

Noting that Kenya Kwanza has a majority in the 349-member House, he warned that, in the event that ruling coalition passes the Bill as it is, “we want the people of Kenya to understand that it is Kenya Kwanza’s Bill.”

“We will instruct our MPs to have nothing to do with it. But any genuine Kenya Kwanza members in the House will see the fallacy of introducing these punitive taxation measures,” Mr Odinga said.

The Bill that is currently before the National Assembly provides revenue raising measures by the government to finance the Sh3.6 trillion budget for the 2023/24 financial year. The budget is the first under President William Ruto’s administration.

The Budget Policy Statement (BPS) passed by the National Assembly and which forms the basis upon which the 2023/24 budget will be structured, projects Kenya Revenue Authority (KRA) to collect Sh3 trillion to finance government spending plans.

Yesterday, Mr Odinga, who was flanked by Narc Kenya party leader Martha Karua, who was his running mate in the August 9, 2022 presidential election, Roots Party of Kenya leader George Wajackoya and former Ndaragua MP Jeremiah Kioni, said the Bill will“strangle and suffocate the same hustlers that Ruto promised to [save from hardships].”

“It is shocking that a regime that rode to office promising to lessen the burden of the [poor] can turn its back on the people so soon [after coming into power],” said Mr Odinga.

National Assembly Clerk Samuel Njoroge has notified the public that they have until May 20 to submit their views on the Bill for consideration by the House before it is enacted into law.

Public Accounts Committee Chairman John Mbadi urged Kenyans not be misled that tax-exempt goods or services will be cheaper “as erroneously implied by Kenya Kwanza politicians in public rallies”.

“This is a government that assumed power on the promise of making the cost of life lower. But what we are seeing in the Finance Bill is the exact opposite. These proposals hurt both the rich and poor alike,” he said.

Mr Mbadi said the situation has been worsened by the fact that President Ruto is surrounded by economist Dr David Ndii and former Treasury Principal Secretary Kamau Thugge, whom he labelled as “ IMF [International Monetary Fund] sympathisers”.

“These people have had experiences with the IMF and Kenyans should know that their advice to the President and the government is biased towards the IMF. They are keen to ensure that unpopular IMF policies go through,” he said, adding that imposing a 35 per cent pay-as-you-earn tax on those earning Sh500,000 and above per month is punitive.

The Bill proposes to tax-exempt Liquefied Petroleum Gas (LPG). Cooking gas currently attracts eight per cent VAT.

However, while tax-exemptions allow consumer buys a product at zero tax, the government pays tax refunds to the producer to cater for the input tax charged on the raw materials used in the production. Tax exemptions without offering reliefs on input tax — what producers incur to make the product — means consumers bear the additional cost. In the end, the tax-exempt product becomes more expensive than the zero-rated one.

Raising VAT on petroleum products from eight per cent to 16 per cent, will increase the cost of living because production and transportation depends heavily on fossil fuels.

The petroleum products to be affected include petroleum oils and oils obtained from bituminous minerals, crude, motor spirit (gasoline) regular, motor spirit (gasoline) premium, aviation spirit type jet fuel, special boiling point spirit and white spirit

. Others are other light oils and preparations, partly refined (including topped crudes), kerosene type jet fuel, illuminating kerosene (IK), medium petroleum oils and preparations, gas oil (automotive, light, amber, for high speed engines) other gas oils, natural gas in gaseous state and other natural gas in gaseous state.

VAT on petroleum products was introduced by the Finance Act, 2018 at a reduced VAT rate of eight per cent, which was aimed at cushioning the economy from the adverse effect of the government’s decision to levy taxes on petroleum products.

This means that VAT at 16 per cent will apply on the petroleum products, a move that will have a significant adverse effect on the cost of living amid the already high global oil prices.

“Having VAT at eight per cent did not come easy. We in the Nasa [National Super Alliance] coalition lobbied then President Uhuru Kenyatta, who was pushing for 16 per cent, to see the sense of reducing it to cushion Kenyans. He eventually agreed,” says Mr Mbadi. Turnover Tax is applicable on sales worth Sh1 million and above and stands at one per cent.

But the Bill proposes the tax to be applied on sales worth Sh500,000 and raise the tax rate to three percent. The taxation will be pegged on gross sales, whether the seller makes a profit or not.

“The biggest casualties here will be small and medium sized businesses. Those businesses are at the heart of the hustler nation. They are struggling,” said Mr Odinga.

He added that the same businesses are already taxed by county governments who bog them down through a myriad requirements for permits and licences. “Our stand is that this tax should remain at one per cent and should be applicable to sales of Sh1 million and above. Under the Housing Fund, the Bill proposes to impose a three per cent deduction on basic salaries of all employees to finance the government’s affordable housing programme.

Mr Odinga said that it was not clear to him how the Kenya Kwanza administration arrived at the three per cent.

He pointed out that “in an economy where employees are already faced with reduced incomes due to the high cost of goods, we find the introduction of this new tax irrational.”

He argued that the tax reduces the amount of disposable income available to the economy and further pointed out that there was no guarantee that the housing scheme will work where others such as the National Social Security Fund (NSSF) and National Health Insurance Fund (NHIF) have been crippled by corruption. Mr Odinga also noted that the attack of the digital economy by imposing the turnover tax is bad news for young people who are merely trying to earn a living using their creative talents in the digital space.

From paying zero tax currently, content creators in the digital market will be required to pay a 15 per cent turnover tax.

“As a country, we will be killing innovation and leaving our youth with too few options, if any. We will not support this proposal,” the Opposition leader said.

The Bill also seeks to tax money paid to officers travelling out of their work stations on duty at 30 per cent, raising questions how they should meet their expenses. “Since when did reimbursements get to be treated as income? ” Mr Odinga posed.

The Bill proposes a change of status of goods like maize flour, cassava flour and a number of other types of flours being moved from tax-exempt status to standard rates, in what will lead to an increase in their cost.

The Bill also seeks to change the status of pharmaceutical products, agricultural pest control products and fertilisers and transportation of sugarcane from farms to milling factories, previously zero-rated, to tax-exempt.

This effectively raises the cost of medicines, healthcare and food, including that of locally produced sugar and goes against Kenya Kwanza’s often stated pledge to subsidise production.

The Kenya Kwanza administration also wants to raise duty on imported cement, forcing local producers to raise their prices.

This will impact the local construction industry, which is currently the main driver for job creation in the country.

The government is seeking to construct 200,000 units each year in its affordable housing scheme.

Beauty products like wigs, false beards, eyelashes, human hair and artificial nails, among others, have not been spared as they will see their taxes rise from Sh0.6 to Sh2.5 per stamp, which is about a 316 per cent rise.

Like the digital economy, the beauty industry has become a major employer particularly for “our youth and women who have been unable to find work elsewhere”, Mr Odinga said.

“It is a home to hustlers. Now Kenya Kwanza is going after their earnings. Kenya Kwanza wants to treat beauty as a luxury. We disagree,” Mr Odinga stated.

The Bill further proposes to amend the Tax Appeals Tribunal Act of 2013 to introduce a requirement for taxpayers to deposit with the Kenya Revenue Authority (KRA) 20 per cent of the tax in dispute or security equivalent to 20 per cent of the disputed tax in what will impact companies.

This is required before they file an appeal to the High Court against a decision of the Tax Appeals Tribunal.

The requirement to pay 20 per cent of the disputed tax will, however, not apply where KRA is the one appealing to the High Court.

Raila opens new battlefront with Ruto on tax plan
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Opposition leader said ‘punitive’ tax proposals in the Finance Bill, 2023 will raise the cost of living and hurt the economy if passed