A fair tax policy is key especially in times of economic distress.

A Finance Bill is a legislative proposal from the executive arm of government that contains proposals that impact taxes, duties, exemptions and reliefs. These proposals are submitted to Parliament at least once a year by the treasury which then propose to set the principal tax rates for each government’s fiscal year. As you read this, the Treasury through the National Assembly Departmental Committee on Finance and National Planning has floated new tax measures in the Finance Bill, 2023. This very ambitious Bill attempts to broaden the tax base and raise revenue to finance the Ksh3.64 trillion 2023/2024 budget proposals. If the taxation proposals are passed by Parliament, they will take effect from 1st July 2023.

This Bill is currently being taken through public participation where Kenyans will be expected to submit their views by May 20^th 2023, ahead of Parliament’s approval in June. The changes being proposed by the Bill are numerous, but the most consequential ones seek to alter the Value Added Tax (VAT), excise duty, turnover tax and income tax. In the past, the government has heavily relied on income and consumption taxes but this time round the Finance Bill has been broadened to raise revenue from various sources such as digital assets.

Public opinion on the bill is varied but mostly negative, especially since the government is on an expansionary trajectory despite the current economic distress due to Kenya’s high public debt and the aftershocks of the COVID-19 pandemic. The 2023/2024 budget is also higher than the 2022/2023 budget notwithstanding the government promises to take up austerity measures. On the other hand, citizen’s income continues to shrink due to the high cost of living. Therefore, the question that lingers is, will citizens continue to dig deeper into their pockets to fund the government that wants to spend more?

It seems government economists are stuck to the argument that the aim of the expansionary measures is to stimulate the economy, spend more and jump-start the economy but what’s the guarantee that the revenue collected be used for the common good? The question of taxation in Kenya cannot be fully answered without revisiting the issues of rampant corruption in public service. In the past, revenue has been collected only to end up in private bank accounts. Debts have been incurred only to end up in tax havens in Europe. Will this budget cycle be any different?

As a Kenyan, paying tax is a moral obligation, but bureaucrats in the government have a duty of making it fair and just. Section 40 of the Public Finance Management Act, 2012 stipulates that Kenya’s taxation policy must take into account the principles of equity. As a rule of thumb, the poor cannot be overtaxed. Considering the prevailing dire economic situation for most Kenyans, isn’t it rather puzzling that tax would be doubled and tripled in some instances? Is that fair-play?

In contextualizing the Finance Bill and today’s government, it is impossible not to measure the Bill’s proposals against the pledges made by President William Ruto. A quick analysis by Mzalendo shows that a number of key, pro-poor economic promises have already been reneged.  The double increase of VAT on petroleum products for instance flies in the face of President Ruto’s promises. The effect of raising the cost of energy in Kenya is common knowledge to all of us.  Bearing in mind that 16% of Kenyans live in extreme poverty, increase of basic commodities’ is likely to lower the purchasing power of more Kenyans, further impoverishing them. These tax increment measures also come at a time when the government is also cutting down on its welfare programs such as funding all university students.

It is in the public domain that the government wants to meet its financial obligations such as debt payments but there must be a balance that must be stricken in the attempt to raise spending and therefore the gross domestic product. It is also important to be realistic in setting revenue targets, because when these targets are not met, it will translate into more borrowing. As things are, more borrowing may be equivalent to digging us deeper into an economic pandemonium. As an area of quick action, parliamentarians ought to be on the lookout to disallow unrealistic revenue targets to be used as a tool of debt accumulation.

In passing the Finance Bill, 2023, it will be fundamental for Members of Parliament to be pragmatic by taking into account our economic realities. As they embrace the good proposals in the Bill such as reduction of VAT on Liquified Petroleum Gas (LPG), tax incentives to encourage local manufacturing of medicines, reduced excise duty on telephone (airtime) and data services, among others, they need to amend taxes that are punitive. To citizens, this is the right time for your voice to be heard and shape the taxation policy for the next one year, use the window for public participation and submit your input to the Finance and National Planning Committee by 20th of May 2023.

Posted by Loise Mwakamba on May 12, 2023

Categories:  Finance Bill   Finance Bill 2023