Kenya: People, Power and the Politics of the 2023 Finance Bill

By Imali Ngusale

The odyssey of broadening Kenyan tax net has led to the proposal of contentious Finance Bill that has elicit uproar and anger in equal measure. The proposed Bill seeks to amend various tax laws, including the: Income Tax Act (ITA), VAT Act, 2013 (VAT Act), Excise Duty Act, Tax Procedures Act, 2015 (TPA), and Miscellaneous Fees and Levies Act.

Members from the Civil Society Parliamentary Engagement Network (CSPEN) took a deep dive on the ammendments.

To begin with the Financial Bill seeks to increase the pay as you earn (P.A.Y.E) tax rate from 30 percent to 35 percent on anyone earning above Ksh6,000,000 (US$43,500) per annum. This essentially means that anyone earning above Ksh500,000 or US$3,625 per month will have to part with 35 percent of their income.

Additionally, every Kenyan will have to contribute 3 percent from their salary income towards affordable housing. For every 3 percent every employee contributes, the employer will be required by law to save an extra 3 percent. This means that it will be expensive for employers to increase the number of employees as they will have to pay 3 percent for each, should the Bill be enacted to law.

Speaking at the CSPEN review of the Financial Bill at the Norfolk Hotel in Nairobi, Cuba Ngondi from International Budget Partnership (IBP) said “if the government is going to increase the taxes on its citizens it should at least tighten its expenditure belt by reducing unnecessary cost.”

In his view, the Kenyan government needs to cut the costs before increasing employee taxes. Ngondi also underscored that there are unaccounted expenses that make it challenging to blindly consent to the sincerity of the government.

With the same breadth, Evans Juma from the Institute of Certified Public Accountants of Kenya (ICPAK) said that “the government must operate within the confines of the budget and the budget requires resources. However, the resources available are not enough living Kenya with a colossal fiscal deficit of approximately Kshs768 billion (US$5.57 billion).”

This fiscal deficit must be funded either through borrowing or increasing taxes for more revenue. However increased VAT of 16 percent on petroleum products hurts the economy because several sectors of the economy are dependent on it i.e., transport, manufacturing, tourism, health, aviation. An increase has a ripple effect on these sectors thereby reducing their potential contribution to the gross domestic product.

Juma argues that Kenya’s debt repayment obligations being a fast charge on the consolidated funds reduces the fiscal space that Kenya needs to implement its budget in its entirety. Therefore, there is need for the government to put in place robust measures that would increase revenue generation, reduce expenditure and improve service delivery to the already highly taxed citizens.

This notwithstanding, Gitonga Wambere from Mzalendo Trust, said “I believe the Bill seeks to stabilize the economy.”

“The Bill needs to have austerity measures that are feasible” added Gitonga.

But austerity in Kenya seems to come at a very hefty price. The Financial Bill proposes to amend Section 2 of Cap 470 of the constitution by increasing the excise duty on betting and gaming from 7.5 percent to 20 percent.

In particular the Bill states that the taxes from gaming, lottery, prize competition, gambling or similar transaction under the Betting, Lotteries and Gaming Act need to be remitted within 24 hours.

Additionally, the Bill seeks to amend Clause 2(b) on the Digital Content monetization. This means that cryptocurrencies may also not be spared. The bill seeks to amend the Digital Asset Tax to include advertisement on websites, social media platforms or similar networks by partnering with brands including endorsements from sellers of such brands, sponsorship, affiliate marketing, subscription services, content creation and crowdfunding.

But perhaps what is most contentious is that the Digital Asset Tax seeks to increase duty on digital transfers.

Bottom line, the government needs to scale down its expenditure envelope and focus on productive sectors of the economy that would have optimum impact to the economy. Reduction of wastage, corruption would save the government the much-needed resources to plug the fiscal deficit in the overall budget.

As it is, the projection of the overall budget which has been on an upward trajectory for the last 5 years should be realistic taking into consideration the prevailing macro-economic circumstances of Kenya.

Unrealistic budget projections put the government and citizens under pressure to avail resources available. Kenya should have a balanced a budget and the expenditure projections should correspond to the resource envelop potential.

If Kenya accepts the 2023 Financial Bill, it may be one of the most expensive countries to live in Africa.

The pressure as a result of the taxes imposed by the new administration, has reached its boiling point, while the services provided are not commensurate to what Kenyans pay.

Imali Ngusale is a prolific African writer passionate about amplifying Pan-African stories on Socio-Economic Justice, Climate Change, and Politics. You can access more of her publications via her her blog at ngusaleimali.blogspot.co.ke.