The Finance Bill, 2023 which has got many tongues wagging across the country was tabled before the National Assembly on Thursday, May 4, 2023, by the National Treasury. The Bill proposes an array of tax changes geared towards expanding the tax base and raising revenue to meet the government’s ambitious budget of KSh3.6 trillion for the year 2023/2024.
Some of the notable changes include the introduction of a 3% deduction from employees towards the affordable housing program with employers expected to match the employee contributions. When combined with the proposed changes in NHIF and the recent changes in NSSF contributions, the impact on employees and employers will be severe.
There are also proposals to further tax content creation at a rate of 15% and to start taxing trade in digital assets such as cryptocurrency. Another proposal expected to have a wholesale impact on regular Kenyans is the increase of tax on petroleum products from the current 8% to 16% as of July 1. There is also an assault on beauty with human hair, wigs, false beards, eyebrows, eyelashes and artificial nails set to attract excise duty at the rate of five percent.
National Treasury Cabinet Secretary Njuguna Ndung’u has defended the proposals. Speaking to the Daily Nation on May 11 in Mombasa, Prof Ndung’u said: “The proposals on taxes are the way to go but they are not cast in stone. They give an indication of our future direction.”
In his book, The Wealth of Nations, Adam Smith presented four basic principles of proper tax policy. These rules are often referred to as the four canons of taxation:
(1) Equity – the burden of taxation must be distributed equally or equitably among the taxpayers.
(2) Certainty – the tax which an individual has to pay should be certain and not arbitrary.
(3) Convenience – tax should be levied and collected in such a manner that it provides the greatest convenience not only to the taxpayer but also to the government.
(4) Economy – the cost of collecting a tax should be as minimum as possible.
The current regime where taxes are frequently amended through the Finance Act resulting in an unpredictable business environment was meant to be a thing of the past through the implementation of the National Tax Policy which would have seen Kenya’s tax laws reviewed once every five years.
The policy also offered guidance on the collection, enforcement, and administration of tax laws, the basis for the review and development of tax laws, and guidelines to stakeholders including investors on tax policy matters; guiding principles for the Kenyan tax system.
In July 2022, the former Treasury CS called for Kenyans to submit their comments on the draft National Tax Policy. The deadline for submissions was set for August 5, 2022, a mere four days before Kenyans headed for the general election. Since coming into power, the Kenya Kwanza administration has gone silent on the national tax policy while constantly raising taxes.
For political strategist and analyst JME Simekha, speaking to Tuko, taxation is both a political and economic issue that should not be left solely in the hands of economists. “Determining how we should tax ourselves for our security and development should be primarily a political construct, which starts from the people’s practical experiences, takes into consideration variables from our experiences and factual knowledge on our production systems before economists finally apply their formulae, numbers, and symbols to it,” Simekha explained.
The latest proposed tax increases have been opposed by politicians from by sides of the aisle as well as by trade unionists. According to Capital FM news, Public Sector Trade Unions have threatened to call for industrial action if the proposed taxation in the Finance Bill is enacted into law.
Opposition leader Raila Odinga has urged lawmakers to reject the Finance Bill 2023: “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. We will instruct our MPs to have nothing to do with it. Any genuine Kenya Kwanza members in the House will see the fallacy of introducing these punitive taxation measures.”
While staying mum on the variety of hefty tax proposals in the Finance Bill 2023, President William Ruto on Thursday, May 11 strongly defended the housing levy claiming: “The contribution you make in the housing fund is not a tax…sio ushuru, ni pesa yako, si pesa ya ushuru (it Is not tax, it is your contribution). It is the shillings that will become thousands, millions, and billions and that is the money we are going to use to build affordable housing.”
Speaking during Citizen TV’s Monday Report, economist Kwame Owino was scathing in his analysis of the housing levy. “There is nothing that says that taxes have to be high. There is nothing in the economic textbooks that says taxes have to be increased based on the emotions of the moment. If we have not created jobs from 14 million houses, who tells you that constructing 1,000 units in Siaya County is going to create jobs? We are lying to ourselves,” said Kwame.
In a ruling delivered by Speaker Moses Wetang’ula last year, Azimio coalition had a majority with 171 members against Kenya Kwanza’s 165 but thanks to post-election agreements entered into after the 2022 General Election, Kenya Kwanza has gained majority status of up to 200 out of the 349 MPs. To pass, the Finance Bill 2023 requires a simple majority.
In spite of the ongoing constitutionally mandated public participation exercise, Nandi Senator Samson Cherargei has asserted that not a comma will be amended in the Bill. “I can assure you that as Kenya Kwanza we are going to pass the Finance Bill in Parliament without an amendment. As a country, we do not have that luxury and instead have two options, we either borrow more or we tax. Our creditworthiness internationally is already low meaning we have no option but to impose taxes,” declared Cherargei as quoted by Tuko.
On the issue of whether Kenya has a revenue or a spending problem, it may be prudent to revisit the words of financial expert, Mohamed Wehliye writing in the Daily Nation in June 2019: “Our budget deficit and debt crisis stems from the government’s persistent overspending and misplaced spending priorities…Tax revenue will not solve our debt and deficit crises. In fact, it will make it worse, because no matter how robustly our tax revenue grows and no matter how much Treasury CS taxes poor Wanjiku, the government will always find a way to spend everything it collects — plus more.”
Four years later and even with a new regime in town, the script remains painfully similar.