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Budget proposals that will hit you if effected as drafted


Economy

Budget proposals that will hit you if effected as drafted


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Even as State strives to meet its Sh3.6 trillion budget, what the common mwananchi could do with is a gradual as opposed to a steep increase in taxes. FILE PHOTO | SHUTTERSTOCK

The Finance Bill, 2023, was presented to Parliament for its first reading on May 4, 2023, and puts on the table radical changes to the tax regime.

The objective is to enhance revenue collection by broadening the tax base, increasing charges and implementing real-time collection.

It, however, contains provisions that could have a significant negative impact on wananchi.

Read: Industries the new National Tax Policy will hit hardest

It is, therefore, important that MPs consider stakeholders’ input, especially in view of the pro ‘hustler’ rallying call.

Some of the key proposals that may have deleterious effects if implemented as currently drafted include the following:

The Bill proposes to subject petroleum products to VAT at a standard rate of 16 percent from the current rate of eight percent.

Given that fuel especially diesel is a significant driver of the Kenyan economy, supporting virtually all sectors of the economy, it will have a ripple effect on various other segments.

This will likely result in a rise in inflation, a higher cost of living, and a disproportionate impact on low-income households.

Moreover, the Bill proposes to reduce the turnover tax bands from the current Sh1 million to Sh50 million and increase the turnover tax rate from one percent to three percent.

This being the last of the Covid-19 economic stimulus package, the government has arguably incubated these businesses and is now looking to mainstream them.

Considering that most firms are still recovering from the adverse effects of the Covid-19 pandemic, which have been compounded by the Russia-Ukraine war and the global supply constraints, the government would do well to graduate these changes.

For example, it could consider amending the top band to Sh25 million for up to 2024 and then lowering it in 2025.

Not only is this predictable but it provides businesses the much-needed headroom to recover.

Additionally, there is a proposal in the Bill requiring payments to digital content creators to be withheld at a rate of 15 percent.

Taxing digital content creators, who are mostly young individuals hustling to make ends meet, at a high rate of 15 percent is seen as burdensome, bearing in mind that other professionals enjoy a lower rate of five percent.

Read: Rethink these set of proposals before passing Finance Bill

Even as State strives to meet its Sh3.6 trillion budget, what the common mwananchi could do with is a gradual as opposed to a steep increase in these taxes.

Wotune is a Senior Advisor, at Ichiban Tax & Business Advisory LLP. [email protected]


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