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Impact of the Finance Bill 2024 · The Mwango Capital Podcast

0:00
SPEAKER_02: Welcome to Mongo Spaces.
0:01
SPEAKER_02: This Wednesday evening, we want to unpack the finance bill, which was released over the weekend.
0:06
SPEAKER_02: So we have a couple of days left.
0:07
SPEAKER_02: I think the deadline for submission of comments is 28th of this month.
0:11
SPEAKER_02: So we have 13 days to analyze and to send in all our comments.
0:15
SPEAKER_02: So to unpack that, we have three experts.
0:16
SPEAKER_02: Right now we have Karambo only, but we'll get started with her and then the rest will join along the way.
0:20
SPEAKER_02: So Karambo,
0:21
SPEAKER_02: maybe you can start by introducing yourself a little bit and then we can get
0:24
SPEAKER_02: started on that and what you do day to day.
0:26
SPEAKER_01: My name is Karambo Mudhaura.
0:27
SPEAKER_01: I am a health taxes expert.
0:30
SPEAKER_01: I have been the tax policy and administration space for the last 18 and a half years.
0:36
SPEAKER_01: I'm glad to be here.
0:37
SPEAKER_02: Anas has joined us.
0:39
SPEAKER_02: Anas, maybe you can say hi also.
0:40
SPEAKER_02: Good evening and thanks for inviting me.
0:42
SPEAKER_02: My name is Anas Maroum and I'm a partner at Anas & Martin Associates.
0:46
SPEAKER_02: We do audit and tax services as consultants.
0:48
SPEAKER_02: Ruth will join us in a few, but we'll get started.
0:51
SPEAKER_02: Maybe we can start with a bad idea of the Finance Bill 2024.
0:54
SPEAKER_02: Karamba, you can give us a bit of your peak takeaways from the Finance Bill 2024 so far.
1:00
SPEAKER_01: From the total finance bill, I see a lot of just revenue raising.
1:05
SPEAKER_01: And in some aspects, I cannot get very clearly what the policy of the government is.
1:10
SPEAKER_01: For example,
1:11
SPEAKER_01: when the reversal changes that had been done in the previous year,
1:15
SPEAKER_01: and I can see that this has not been a very long period for us to scrutinize and
1:20
SPEAKER_01: see whether something has been effective or not.
1:23
SPEAKER_01: And also, I see a bit of tax reduction in areas where
1:28
SPEAKER_01: we are grappling with as a country.
1:30
SPEAKER_01: For example, I see a remission being offered on being made from locally grown agricultural products.
1:37
SPEAKER_01: And it leaves me questioning.
1:38
SPEAKER_01: I see the DP is fighting alcoholism,
1:41
SPEAKER_01: and then we are making these changes that don't seem to be heading in the same direction.
1:46
SPEAKER_01: And some of the proposals in the Act are really,
1:49
SPEAKER_01: some I'm for,
1:50
SPEAKER_01: and others I am left with a small question mark that I would want to understand
1:54
SPEAKER_01: further also.
1:55
SPEAKER_02: And maybe you can give us also your quick,
1:57
SPEAKER_02: bad side view of the Finance Bill 2024 before we dig into the details.
2:01
SPEAKER_02: Like with every other finance bill, it's a mixed bag of things, good, bad, ugly stuff.
2:07
SPEAKER_02: Some of the good things are good and some of the bad things, some are really terrible.
2:11
SPEAKER_02: But I hope during public participation, parliament will be receptive.
2:15
SPEAKER_02: in listening to views from the public in modifying items they have in the bill so
2:20
SPEAKER_02: that we do not have cases going to courts like we've had with the Finance Act 2023
2:26
SPEAKER_02: and the Housing Act 2024.
2:29
SPEAKER_02: So my prayer is during public participation this time it should not be an academic exercise.
2:34
SPEAKER_02: It will be a real receptive and collaborative exercise between the public and National Assembly.
2:40
SPEAKER_02: Thank you.
2:41
SPEAKER_02: Your parting days to analyze and send in your comments.
2:44
SPEAKER_02: So very tight schedules.
2:45
SPEAKER_02: Let's start with maybe again,
2:47
SPEAKER_02: the quick overview of what's the good,
2:49
SPEAKER_02: the bad and the ugly from your perspective,
2:51
SPEAKER_02: Anis.
2:51
SPEAKER_02: So some of the good is the improvements in terms of the pension,
2:54
SPEAKER_02: making pension and provident savings that are received tax exempt from at 60.
3:01
SPEAKER_02: So I think that is pretty good.
3:03
SPEAKER_02: You do not have to wait until you're 65 to access your pensions tax-free.
3:08
SPEAKER_02: And you can also access your pensions tax-free after 20
3:11
SPEAKER_02: years.
3:11
SPEAKER_02: So I think that's a very good proposal for encouraging people to leave their money in schemes.
3:18
SPEAKER_02: They've also increased the tax allowable pension contributions to 30,000.
3:22
SPEAKER_02: So I think that will also help and encourage individuals and companies to save in pension schemes.
3:28
SPEAKER_02: I think that for me is the good.
3:30
SPEAKER_02: The bad,
3:31
SPEAKER_02: of course,
3:31
SPEAKER_02: you start with the bread,
3:32
SPEAKER_02: the motor vehicle tax or the road usage tax is still quite suspect.
3:38
SPEAKER_02: bread I don't think was necessary.
3:39
SPEAKER_02: A lot of exemptions have been dropped, some within the financial services sector.
3:45
SPEAKER_02: Of course,
3:45
SPEAKER_02: the increase in the excise duties in financial services,
3:50
SPEAKER_02: money transfer,
3:50
SPEAKER_02: I think that is really bad.
3:52
SPEAKER_02: What would I call ugly?
3:54
SPEAKER_02: Some of the proposals you'll find in the ecotax,
3:58
SPEAKER_02: introducing an ecotax on diaper,
4:00
SPEAKER_02: I think that will make diapers pretty expensive.
4:03
SPEAKER_02: Introducing excise duty on cooking oil, I think that will also be terrible.
4:07
SPEAKER_02: There are several other bad and ugly proposals in this bill that need to be really
4:14
SPEAKER_02: looked at and cleaned up.
4:16
SPEAKER_02: I hope Parliament will be receptive to that.
4:18
SPEAKER_02: Thank you, Anas, for the broad overview.
4:20
SPEAKER_02: Karambu, maybe your good, bad and ugly takeaways before we go into the nitty-gritty details now.
4:26
SPEAKER_01: I think my first really ugly is the motor vehicle tax.
4:28
SPEAKER_01: I don't think that is encouraging to anyone and it makes life extremely expensive for everyone.
4:36
SPEAKER_01: Also,
4:36
SPEAKER_01: removing excise duty from motorcycles and leaving it only for the electronic motorcycles,
4:43
SPEAKER_01: then of course that will deter people from onboarding the use of electronic motorcycles,
4:49
SPEAKER_01: which means in essence that we are encouraging continued pollution from the use of
4:54
SPEAKER_01: petrol-motored motorcycles.
4:55
SPEAKER_01: Because the other thing for me is seeing that they're making every effort to stop
5:03
SPEAKER_01: even the cabinet secretary from making any adjustments either upwards or down on excise.
5:09
SPEAKER_01: And then we have, of course, the increasing of excise duty rates on financial services.
5:15
SPEAKER_01: And one of the things that bothers me there is because when we talk about mobile money transactions,
5:21
SPEAKER_01: Then what we had done is that we had managed to get through to the unbanked.
5:26
SPEAKER_01: And because this is becoming expensive,
5:29
SPEAKER_01: then I think a lot of people will avoid making transactions because making the
5:34
SPEAKER_01: transactions is already expensive.
5:36
SPEAKER_01: And so when you increase it again now to 20% and then you are adding more fees that
5:41
SPEAKER_01: are going to be accessed,
5:42
SPEAKER_01: then the whole finance industry is just going to be expensive for the money.
5:47
SPEAKER_01: Just dealing with your own money is going to be extremely expensive for you.
5:51
SPEAKER_02: Now, we'll start with the nitty-gritty details now.
5:54
SPEAKER_02: And Anas,
5:54
SPEAKER_02: maybe you can take us a little bit through the income tax changes that have
5:57
SPEAKER_02: happened in the Finance Bill 2024 and how they impact the listeners.
6:01
SPEAKER_02: Many amendments in the income tax act.
6:03
SPEAKER_02: So some are new proposals and some is to replace existing taxes.
6:07
SPEAKER_02: So there's what they call in the significant economic presence tax,
6:11
SPEAKER_02: which is the tax that has been introduced to replace the digital services tax.
6:15
SPEAKER_02: From a mechanism and operation, the digital services tax was being levied at 1.5% on the gross turnover.
6:24
SPEAKER_02: This significant economic presence tax just adds a middle step.
6:29
SPEAKER_02: It says that they will deem a taxable profit of 20% of your turnover and then tax
6:34
SPEAKER_02: that 20% deemed taxable profit at 30%.
6:39
SPEAKER_02: So in effect, the tax rate has increased.
6:42
SPEAKER_02: Increase from 1.5% to 6% of the gross turnover in terms of payment dates remains
6:48
SPEAKER_02: the same on the 20th of the next month.
6:50
SPEAKER_02: I want to double click on something there.
6:52
SPEAKER_02: So the deemed tax, maybe you can break it down a bit for our listeners.
6:56
SPEAKER_02: What is that exactly?
6:58
SPEAKER_02: So if your income was 100 shillings, then they will deem that you had a profit of 20%.
7:02
SPEAKER_02: So your profit is 20 shillings.
7:06
SPEAKER_02: Then you'll pay a tax at 30% of that 20 shillings.
7:10
SPEAKER_02: So effectively, it will be 6 shillings as the tax payable.
7:14
SPEAKER_02: So that 6 shillings as a percentage of the gross is 6% of the gross income that
7:20
SPEAKER_02: you've earned or the revenue that you've earned from that service.
7:23
SPEAKER_02: Then they've introduced a new tax called the minimum top-up tax.
7:27
SPEAKER_02: This has a complicated formula,
7:29
SPEAKER_02: but it is being targeted at companies that exist in Kenya that are subsidiaries of
7:35
SPEAKER_02: very large companies globally in terms of companies that have a global turnover of
7:41
SPEAKER_02: €750 million.
7:42
SPEAKER_02: That is more than €100 billion in gross turnover.
7:46
SPEAKER_02: Effectively, these are very significant companies that will be affected by the minimum top-up tax.
7:52
SPEAKER_02: I would not like to go through the detail of how it works,
7:56
SPEAKER_02: but basically targets subsidiaries of very large companies.
8:00
SPEAKER_02: And are there some of the companies that you think may be impacted by this minimum top-up tax?
8:05
SPEAKER_02: So if you're a subsidiary in Kenya and your head office in Europe or in the United States,
8:12
SPEAKER_02: for example,
8:13
SPEAKER_02: in the IT sector,
8:15
SPEAKER_02: in the pharmaceutical sector,
8:17
SPEAKER_02: that's where you'd find large companies.
8:20
SPEAKER_02: Motor vehicles, if you're a motor vehicle distributor, a company like
8:25
SPEAKER_02: Toyota, which has a presence in Kenya.
8:27
SPEAKER_02: So such large organizations, yes, their subsidiaries in Kenya would be subject to minimum top-up tax.
8:34
SPEAKER_02: And if the effective tax rates based on their computer aids profit and loss is less
8:39
SPEAKER_02: than 15% of the profit,
8:41
SPEAKER_02: then they would have to pay the top-up tax.
8:44
SPEAKER_02: So the next thing is the income tax proposals includes what we call for transfer pricing,
8:51
SPEAKER_02: advanced pricing agreements.
8:53
SPEAKER_02: So advanced pricing agreements is where you have in related party transactions with
8:57
SPEAKER_02: companies outside Kenya.
9:00
SPEAKER_02: and you want to have a stable working environment,
9:04
SPEAKER_02: you go and agree based on the OECD transfer pricing guideline on how to price your products,
9:11
SPEAKER_02: your services with your related parties outside Kenya.
9:14
SPEAKER_02: And once you have come up with those prices, you go and you agree with KRA.
9:19
SPEAKER_02: If KRA approves those prices, then you can be able to apply those prices for five years.
9:25
SPEAKER_02: That means if you apply the prices consistently, then you do not
9:29
SPEAKER_02: get exposed to a transfer pricing audit by KRA, which is good in terms of stability of prices.
9:36
SPEAKER_02: All KRA will just come is confirm,
9:38
SPEAKER_02: one,
9:38
SPEAKER_02: those prices applied as agreed,
9:40
SPEAKER_02: and two,
9:41
SPEAKER_02: you did not misrepresent the pricing mechanisms or the information that you had
9:46
SPEAKER_02: given them.
9:47
SPEAKER_02: So if there's no misrepresentation and the prices were done,
9:50
SPEAKER_02: has agreed,
9:51
SPEAKER_02: then KRA for five years will not subject you to a transfer pricing audit,
9:56
SPEAKER_02: which gives you predictability.
9:58
SPEAKER_02: When it comes to transfer pricing, lack of predictability can be a challenge for businesses.
10:03
SPEAKER_02: But once you have an agreement that is signed off with KRA,
10:06
SPEAKER_02: then there will be stability in your prices for five years.
10:09
SPEAKER_02: They've now introduced withholding tax to the digital marketplace.
10:14
SPEAKER_02: This withholding tax is at the same rate as normal withholding taxes,
10:19
SPEAKER_02: 5% for residents and 20% for non-residents.
10:23
SPEAKER_02: So this now gives us uniformity in the withholding tax rates.
10:27
SPEAKER_02: Previously, the rates that were used for digital market services were different.
10:32
SPEAKER_02: But now that we have the withholding tax uniform with all other services, professional services,
10:39
SPEAKER_02: royalties at 5% and 20%.
10:42
SPEAKER_02: Where the definitions are not clear,
10:44
SPEAKER_02: there will not be a risk for any disputes with KRA because it doesn't matter how
10:50
SPEAKER_02: you define your product,
10:51
SPEAKER_02: the rates are the same.
10:52
SPEAKER_02: So those supplying goods to public entities,
10:55
SPEAKER_02: new withholding taxes have been introduced or proposed for any resident person
11:00
SPEAKER_02: selling to a county government,
11:02
SPEAKER_02: the national government,
11:04
SPEAKER_02: parastatals or any other state department or agency or corporation.
11:09
SPEAKER_02: The withholding tax rate for residents would be 3% and the withholding tax rate for
11:14
SPEAKER_02: non-residents would be 5%.
11:16
SPEAKER_02: I don't know how this will work for the counties because counties generally do not
11:21
SPEAKER_02: remit withholding taxes historically,
11:23
SPEAKER_02: but other MTAs do.
11:25
SPEAKER_02: ministries and departments do withhold remits but county governments are notorious
11:30
SPEAKER_02: for non-remission so which will not be good because if they deduct the amount from
11:35
SPEAKER_02: you the supplier and they fail to remit that means you're losing the advance tax
11:40
SPEAKER_02: that you would be able to apply when you're doing your year-end computation so my
11:44
SPEAKER_02: expectation is the government then should surveillance of counties probably deduct
11:50
SPEAKER_02: any amounts of tax that should have been remitted
11:54
SPEAKER_02: from distribution of funds from the national government to the county government.
11:59
SPEAKER_02: The definition of royalties has been expanded.
12:01
SPEAKER_02: So royalties has now been expanded to include software.
12:05
SPEAKER_02: So software was not previously included in the definition of royalties,
12:10
SPEAKER_02: but from a lot of cases that have happened in the past,
12:13
SPEAKER_02: a software was deemed a royalty,
12:15
SPEAKER_02: but now it is expressly included in the bill.
12:19
SPEAKER_02: This includes also software that is sold through physical devices.
12:23
SPEAKER_02: what they're calling off-the-shelf, off-the-shelf softwares.
12:27
SPEAKER_02: We expect now it will occur when applying withholding taxes that any person who
12:33
SPEAKER_02: buys any software online or physically from a shop will be required to pay
12:38
SPEAKER_02: withholding taxes.
12:39
SPEAKER_02: Some potential risk because when you buy software in physical devices,
12:44
SPEAKER_02: in a CD,
12:45
SPEAKER_02: in a flash disk,
12:46
SPEAKER_02: then this will create additional costs to
12:49
SPEAKER_02: the vendor and to the users.
12:51
SPEAKER_02: So it will make softwares a bit expensive going forward.
12:55
SPEAKER_02: Under the affordable housing scheme,
12:57
SPEAKER_02: so the reliefs that were provided for under the Income Tax Act have been proposed
13:02
SPEAKER_02: to be removed in terms of affordable housing relief for the levy and affordable
13:07
SPEAKER_02: housing contribution relief of 15%.
13:11
SPEAKER_02: However,
13:11
SPEAKER_02: on the other hand,
13:12
SPEAKER_02: they have made any contributions in terms of affordable house levy will be
13:17
SPEAKER_02: deductible from your income when computing your income tax.
13:21
SPEAKER_02: This, of course, will be better because any amount that you pay, the 1.5% levy that the employee pays,
13:29
SPEAKER_02: will be reduced from his taxable income and basically gives you a relief of 30%
13:35
SPEAKER_02: from the tax that you pay to KRA.
13:37
SPEAKER_02: So I think that is a good introduction that will provide additional income to
13:42
SPEAKER_02: Kenyans who have had their income reduced because of the affordable housing levy
13:48
SPEAKER_02: that was reintroduced this year by the Affordable Housing Act.
13:52
SPEAKER_02: On the affordable housing,
13:53
SPEAKER_02: I was curious,
13:54
SPEAKER_02: how come they're making changes this soon after the bill was passed,
13:57
SPEAKER_02: like a couple of months ago?
13:59
SPEAKER_02: The first reason is just to increase the disposable income for individuals.
14:04
SPEAKER_02: Making this amount tax allowable,
14:06
SPEAKER_02: that means the effective amount that you pay is 70% of the 1.5% that is being deducted.
14:14
SPEAKER_02: So that 30% becomes additional income to the levy payer.
14:19
SPEAKER_02: And also,
14:20
SPEAKER_02: on the other hand,
14:21
SPEAKER_02: for any business that is contributing,
14:23
SPEAKER_02: this affordable housing levy will be a tax-allowable expenditure,
14:27
SPEAKER_02: which will also help introduce the tax that you pay.
14:30
SPEAKER_02: And then backing up a little on the minimum top-up tax,
14:34
SPEAKER_02: do you think multinationals would reconsider Kenya as a destination to invest,
14:37
SPEAKER_02: given that the tax is now being imposed on them?
14:40
SPEAKER_02: Eh...
14:41
SPEAKER_02: The minimum top-up tax is part of the global anti-base erosion strategies that have
14:48
SPEAKER_02: been adopted by the OECD.
14:51
SPEAKER_02: So I think the large multinationals that are being targeted by this are already
14:56
SPEAKER_02: applying it in other jurisdictions.
14:58
SPEAKER_02: So I do not see it as a disincentive for them.
15:02
SPEAKER_02: I think they will just,
15:03
SPEAKER_02: as a matter of course,
15:04
SPEAKER_02: comply with it because I don't see many large corporations just living because of
15:09
SPEAKER_02: this tax.
15:10
SPEAKER_02: And of course,
15:11
SPEAKER_02: given that many of them are already having transfer pricing policies and these
15:15
SPEAKER_02: transfer pricing policies are geared towards ensuring that your businesses are profitable,
15:22
SPEAKER_02: this will be built into the transfer pricing rules to ensure that the taxes that
15:27
SPEAKER_02: they pay do not fall below 15%.
15:30
SPEAKER_02: Thank you,
15:30
SPEAKER_02: Ernest,
15:31
SPEAKER_02: for that very engaging introduction to the interim tax changes that are supposed to
15:35
SPEAKER_02: be happening.
15:35
SPEAKER_02: We'll come back to you with a couple more questions as they roll in.
15:38
SPEAKER_02: I'll just switch a little to exit tax.
15:39
SPEAKER_02: And first of all, before you go there, we'll start with the motor vehicle tax.
15:42
SPEAKER_02: Can you break down a bit what the proposition by government is as regards to the motor vehicle tax?
15:47
SPEAKER_02: A moment, kindly.
15:49
SPEAKER_02: All right.
15:51
SPEAKER_02: If you have any questions, just go below our pinned tweets and just type in your questions.
15:56
SPEAKER_02: I will definitely be able to look at them as regards the finance bill.
15:59
SPEAKER_02: Just below our pinned tweet,
16:00
SPEAKER_02: you can also see a link to the PDF of the finance bill 2024 if you want to dig into
16:05
SPEAKER_02: it a little bit more.
16:06
SPEAKER_02: We hope next week to have a discussion around how you can submit your comment.
16:10
SPEAKER_02: We have a really high level panel that is joining us next week to discuss
16:13
SPEAKER_02: submitting some of the comments that you have as regards the finance bill and why
16:16
SPEAKER_02: it's important to participate in the process.
16:18
SPEAKER_02: So now we can come back to Karambu, take a look at the motor vehicle tax and why you don't like it.
16:23
SPEAKER_01: Why I don't like it?
16:24
SPEAKER_01: All right.
16:24
SPEAKER_01: Oh, it's quite clear that I don't like it.
16:26
SPEAKER_01: So the bill is proposing a motor vehicle tax,
16:29
SPEAKER_01: which will be payable on every motor vehicle at the time of an insurance cover.
16:35
SPEAKER_01: It's applicable at a rate of 2.5% on the value of the motor vehicle.
16:39
SPEAKER_01: It's based on the make, model, engine capacity.
16:42
SPEAKER_01: You have manufactured the same thing that is done when you are estimating the value
16:46
SPEAKER_01: of the vehicle during purchase.
16:48
SPEAKER_01: And then there's a minimum amount of 5,000 and a maximum amount of 10,000.
16:53
SPEAKER_01: And whether your vehicle is electronic or not, this applies to your vehicle.
16:58
SPEAKER_01: So it's up to the insurer to collect these amounts from you while issuing the
17:03
SPEAKER_01: insurance and then remit it to the commissioner.
17:07
SPEAKER_01: And if he doesn't, he has a penalty of 50% of the collected tax.
17:11
SPEAKER_01: The reason why I do not this is because I feel first it results to a double taxation,
17:19
SPEAKER_01: like for commercial vehicles,
17:20
SPEAKER_01: which are already subject to advance tax.
17:22
SPEAKER_01: And of course, it's not a deductible amount.
17:25
SPEAKER_01: The advance tax is not a deductible amount.
17:27
SPEAKER_01: And then it's going to also discourage motor vehicle owners from taking
17:32
SPEAKER_01: comprehensive insurance because if the rates are high and then you have this
17:36
SPEAKER_01: additional tax,
17:37
SPEAKER_01: Then the process of getting insurance will be a very expensive affair, which already it is.
17:43
SPEAKER_01: And so it will increase the cost of doing business.
17:45
SPEAKER_01: Even for insurance companies, they have to reconfigure their systems.
17:49
SPEAKER_01: TC and also just for any business owner or even for an individual,
17:54
SPEAKER_01: this comes as an extra cost,
17:55
SPEAKER_01: which I feel is too heavy a cost to impose on anyone right now.
18:01
SPEAKER_01: So that's the reason why I do not like the motor vehicle system.
18:05
SPEAKER_01: You can imagine every year paying your, let's say, 10,000 shillings.
18:10
SPEAKER_01: 10,000 shillings at some point.
18:11
SPEAKER_01: Just having a motor vehicle would be such an expensive affair.
18:15
SPEAKER_02: What do you think is your intention in terms of, is it just revenue?
18:18
SPEAKER_02: Or do you really have to link it to something at the end of the day?
18:21
SPEAKER_01: No, I think it's just revenue.
18:23
SPEAKER_01: I think it's just revenue.
18:24
SPEAKER_01: It's just revenue collection.
18:26
SPEAKER_01: A lot of the proposals in the Act to me seem to be just revenue collection.
18:30
SPEAKER_01: And this is one of them.
18:32
SPEAKER_01: I know it had been proposed MTRS, but it's not like we pick everything that is proposed through that.
18:37
SPEAKER_01: But I know highly that this is just a revenue collection item.
18:40
SPEAKER_01: Ernest?
18:41
SPEAKER_02: Yes, I agree.
18:42
SPEAKER_02: It's just intended to increase the revenue collected from taxpayers and any person
18:48
SPEAKER_02: who owns a motor vehicle.
18:49
SPEAKER_02: Because people probably have not been using their motor vehicles much,
18:53
SPEAKER_02: so the fuel consumption was greatly affected by the increase in VAT.
18:58
SPEAKER_02: In other words,
18:59
SPEAKER_02: if you're an intermittent user,
19:00
SPEAKER_02: you just pay one block amount at the beginning of the year,
19:04
SPEAKER_02: and that increases how much they collect.
19:07
SPEAKER_02: If you're going to be using your car once a month,
19:09
SPEAKER_02: once a week,
19:10
SPEAKER_02: yes,
19:10
SPEAKER_02: you still have to pay this tax as compared to the person who uses their vehicle
19:14
SPEAKER_02: every day.
19:15
SPEAKER_02: So this is a revenue raising measure.
19:17
SPEAKER_02: I saw an estimate of around 5% of the cost of comprehensive insurance currently.
19:22
SPEAKER_02: So adding 2.5%, that will take you to 7.5% of the value of the car per year.
19:26
SPEAKER_02: So that's quite substantial.
19:27
SPEAKER_02: Has any one of you looked around in terms of other countries in terms of
19:31
SPEAKER_02: how they've implemented this tax and what percentage is proposed there.
19:34
SPEAKER_02: Because sometimes the government makes the proposal to be 2.5%,
19:37
SPEAKER_02: Kenyans make a bit of noise,
19:39
SPEAKER_02: and then maybe they end up at around 1.51%.
19:42
SPEAKER_02: Is that probable here?
19:44
SPEAKER_02: This tax almost is as the old road license tax that you used to have in there.
19:50
SPEAKER_02: 1990, that was replaced by the fuel levy.
19:53
SPEAKER_02: So in the olden days, a similar tax operated used to pay the amount based on the engine capacity rating.
20:00
SPEAKER_02: So I think it's more or less a reintroduction of an old tax regime.
20:05
SPEAKER_02: So it would probably be nice to look at how the old tax was worded in the law.
20:10
SPEAKER_02: But in terms of mechanics, it's more or less the same.
20:12
SPEAKER_02: The only difference is that previously KRA would call that to be themselves.
20:17
SPEAKER_02: Prior to that,
20:18
SPEAKER_02: the Department of Motor Vehicle used to collect it,
20:20
SPEAKER_02: but now they're going to use the insurer and company to collect this money.
20:24
SPEAKER_02: So I think other than the mechanic of collection, the other parts are more or less the same.
20:29
SPEAKER_02: Because the commissioners have been given powers to come up with guidelines on how
20:33
SPEAKER_02: to determine the valuation of motor vehicle.
20:35
SPEAKER_02: Probably,
20:36
SPEAKER_02: I think he may adopt a scheme or policy or procedure similar to what he uses for
20:41
SPEAKER_02: purposes of customisation.
20:42
SPEAKER_02: valuation because one of the measures the method is supposed to use is the model
20:47
SPEAKER_02: the engine capacity the year of manufacture so when you see that it only reminds me
20:52
SPEAKER_02: of the customs the valuation methods so i think valuation will not be based on
20:57
SPEAKER_02: market value because the word market value has not been applied anywhere in this
21:02
SPEAKER_02: proposal so i can only see him using the customs methodology
21:06
SPEAKER_02: And what is the difference between customs and the normal market value?
21:12
SPEAKER_02: Substantial usually.
21:13
SPEAKER_02: Of course,
21:13
SPEAKER_02: it does generate a dispute because sometimes we find the market value may very much
21:18
SPEAKER_02: vary from the actual value that the KRA has used.
21:22
SPEAKER_02: But here,
21:22
SPEAKER_02: since the market value is not anywhere applied,
21:25
SPEAKER_02: we just have to go with what KRA will come up with,
21:28
SPEAKER_02: what they come up with the regulations.
21:30
SPEAKER_02: Tough one.
21:31
SPEAKER_02: Karambu, do you have something?
21:32
SPEAKER_02: I forgot to do it.
21:34
SPEAKER_01: Yeah,
21:34
SPEAKER_01: I think this is something that had been placed with the fuel levy and we are not
21:39
SPEAKER_01: doing away with the fuel levy.
21:40
SPEAKER_01: Then obviously, it seems that like we are really overtaking the monarchy.
21:45
SPEAKER_01: But I agree with Anas that most likely they did this to catch those of us who have
21:49
SPEAKER_01: not been using our vehicles as regularly because of the increase in the cost of fuel.
21:54
SPEAKER_01: But if they were to introduce something like this, then I don't see the place of the fuel levy.
21:59
SPEAKER_02: From our discussion yesterday,
22:00
SPEAKER_02: I think the chair of the finance committee seems to say that the proceeds from the
22:05
SPEAKER_02: road maintenance levy were not enough.
22:07
SPEAKER_02: And that's why they need a motor vehicle tax to compensate for it.
22:11
SPEAKER_02: I think,
22:11
SPEAKER_02: as Anna said,
22:12
SPEAKER_02: it could be that there's been a drop in terms of demand for fuel,
22:15
SPEAKER_02: given the height that was introduced last year.
22:17
SPEAKER_02: There's just an increase in VAT last year.
22:19
SPEAKER_02: I think that has maybe led to a lower demand for fuel and that has maybe made the
22:24
SPEAKER_02: government rethink in terms of how to collect money for this levy.
22:27
SPEAKER_02: So that's the motivation here.
22:30
SPEAKER_02: In the meantime, I want to introduce Ruth, our third speaker.
22:33
SPEAKER_02: She had quite a bit of a tough time joining,
22:35
SPEAKER_02: but Ruth,
22:36
SPEAKER_02: you could say hi and maybe introduce yourself a little bit.
22:38
SPEAKER_00: Good evening, everyone.
22:39
SPEAKER_00: My name is Brooke Mwiti.
22:41
SPEAKER_00: I am a tech consultant.
22:43
SPEAKER_00: I've been in the industry for about 10 years now, and I'm happy to be here.
22:48
SPEAKER_00: And thank you for inviting me.
22:51
SPEAKER_00: And I hope we will be able to see some of these changes affected and some of them blocked.
22:57
SPEAKER_02: Thank you.
22:58
SPEAKER_02: We definitely took some of the comments that we received on the
23:03
SPEAKER_02: forward them to Parliament by the 28th of March.
23:06
SPEAKER_02: Ruth,
23:06
SPEAKER_02: I need to ask you about some of the views that you discussed with the Montevideo
23:10
SPEAKER_02: County Collegiate Service of the Contemporary.
23:13
SPEAKER_00: All right.
23:13
SPEAKER_00: The motor vehicle tax for me is a bit interesting.
23:17
SPEAKER_00: And maybe my comments to add into what my colleague said is that I see it more like
23:24
SPEAKER_00: a proposal that will definitely come through.
23:27
SPEAKER_00: But because every Kenyan is complaining, probably we will see a deduction.
23:31
SPEAKER_00: And why I say that, you remember last year when...
23:35
SPEAKER_00: The first finance bill came in, there was a 3% housing fee.
23:39
SPEAKER_00: And then after discussion,
23:41
SPEAKER_00: the chairperson of the finance committee said that you asked for a reduction and
23:46
SPEAKER_00: you got it.
23:47
SPEAKER_00: So if you had a look at the credit finance bill that was shared earlier, it was at 1%.
23:52
SPEAKER_00: The motor vehicle tax was at 1%.
23:55
SPEAKER_00: And then now it was increased to 2.5%.
23:57
SPEAKER_00: So I see the proposal probably will go through, but maybe at a lower rate.
24:03
SPEAKER_02: Maybe you can give us a bit of flavor on some of the introductions from the finance bill as regards VAT.
24:09
SPEAKER_00: I will start by probably mentioning the negative one.
24:13
SPEAKER_00: And this one is in relation to the proposed introduction of VAT on certain financial services.
24:21
SPEAKER_00: And looking at historically, financial services were not subject to VAT and have not been subject to VAT.
24:27
SPEAKER_00: And as my colleague Karambu said,
24:29
SPEAKER_00: The idea is to make sure that you bring everyone to the banking bracket.
24:34
SPEAKER_00: So when you introduce these taxes like VAT,
24:38
SPEAKER_00: then a transaction that probably is charged 100 shillings,
24:41
SPEAKER_00: that means you will pay 16% VAT and you also pay excise duty.
24:46
SPEAKER_00: And the question is, if I am going to pay VAT,
24:50
SPEAKER_00: close to 50 shillings from 100 shillings, then why do I need to put my money in the bank?
24:56
SPEAKER_00: Some of it is not fair.
24:59
SPEAKER_00: And also,
25:00
SPEAKER_00: given that now all these services are vatable and some are non-vatable,
25:06
SPEAKER_00: how do the banks track the exempt services and vatable services?
25:11
SPEAKER_00: Because some of them tend to complement each other.
25:15
SPEAKER_00: So this ideally, in my view, will increase
25:19
SPEAKER_00: Why?
25:20
SPEAKER_00: Because some financial services are exempt, some are revertible.
25:24
SPEAKER_00: And the second impact is that it will make banking services very costly and people will shy away.
25:32
SPEAKER_00: You remember sometime this year when people started saying that M-Pesa transactions are being tracked.
25:38
SPEAKER_00: There was a decline in the revenues reported by the telecommunication providers or
25:44
SPEAKER_00: the special services providers.
25:46
SPEAKER_00: So I feel like, yes, your intention is to raise revenue by increasing or introducing VAT.
25:52
SPEAKER_00: But when people shy away, like the fuel issue, then you lose out on the revenue.
25:56
SPEAKER_00: And it is not fair.
25:58
SPEAKER_00: And just to add on the fact that these changes are coming year in, year out.
26:02
SPEAKER_00: year out.
26:03
SPEAKER_00: It is so difficult to track these changes and definitely that increases disputes.
26:08
SPEAKER_00: But I hope that this provision will be reviewed and after review,
26:13
SPEAKER_00: I hope it will be dropped because it's a very punitive provision in my view.
26:17
SPEAKER_00: The other proposal that I want to talk about is the obvious one, the one for bread.
26:23
SPEAKER_00: Bread has been derogated for quite a while now.
26:26
SPEAKER_00: So introduction of VET on bread are
26:30
SPEAKER_00: What are we telling Kenyans?
26:32
SPEAKER_00: That even the thing that they need most, you will have to pay VAT and it's unfair.
26:38
SPEAKER_00: My view generally is the fact that changing law year in,
26:42
SPEAKER_00: year out,
26:43
SPEAKER_00: even without having to look at the impact of previous proposals,
26:47
SPEAKER_00: does not help government.
26:49
SPEAKER_00: Government needs to look at what is working, analyze it, and then implement changes.
26:54
SPEAKER_00: or rather take some time before introducing other laws.
26:58
SPEAKER_00: The other one I would like to talk about is the proposal to introduce VAT on betting,
27:04
SPEAKER_00: gaming and lottery services.
27:06
SPEAKER_00: And this will be at the rate of 16%.
27:08
SPEAKER_00: So I think this issue of betting companies,
27:11
SPEAKER_00: I know Karambu will talk about the excess duty that is on these services.
27:17
SPEAKER_00: The question is for those people who bet, how much will be your bet?
27:21
SPEAKER_00: If you're being deducted exercise duty,
27:23
SPEAKER_00: betting and gaming taxes,
27:25
SPEAKER_00: and now again VAT,
27:27
SPEAKER_00: I hope they will be considered,
27:29
SPEAKER_00: but there is that proposal to introduce VAT on betting and gaming services.
27:34
SPEAKER_00: The other one,
27:35
SPEAKER_00: which is a positive one,
27:36
SPEAKER_00: is the proposal to introduce or to increase VAT threshold for registration of VAT.
27:44
SPEAKER_00: Currently,
27:45
SPEAKER_00: for you to register for VAT,
27:47
SPEAKER_00: you are required to be making sales of 5 million and above per year.
27:53
SPEAKER_00: So the idea through the finance bill is to increase this threshold to 8 million,
27:58
SPEAKER_00: which is a very positive proposal.
28:01
SPEAKER_00: given that some of these people who are registered for VAT are just probably even
28:06
SPEAKER_00: not making so much money,
28:08
SPEAKER_00: but they have to comply with VAT regulations on the basis that they are within the
28:12
SPEAKER_00: 5 million threshold.
28:14
SPEAKER_00: So that is a positive one.
28:15
SPEAKER_00: Then I will talk about the VAT extension that had on transfer of business as a going concern.
28:21
SPEAKER_00: So if you're transferring business from one person,
28:26
SPEAKER_00: to another that had VAT or that currently VAT is applicable on such transfer of business.
28:32
SPEAKER_00: So there is a proposal to introduce a VAT exemption on those transfers.
28:39
SPEAKER_00: The other one is on insurance and reinsurance services.
28:42
SPEAKER_00: Currently, insurance services or insurance services
28:46
SPEAKER_00: are exempt from VAT.
28:48
SPEAKER_00: But what the finance bill seeks to do is to restrict only the insurer and reinsurer premium.
28:56
SPEAKER_00: So any other services that are associated with insurers beyond the premium will be subject to VAT.
29:04
SPEAKER_00: So if this proposal comes through, then we will
29:08
SPEAKER_00: have a very difficult time because any other thing that you're charged in addition
29:13
SPEAKER_00: to your premium then will attract VAT.
29:16
SPEAKER_00: And if you look at the intentional insuring,
29:19
SPEAKER_00: then it should be exempt so that everyone can be able to make sure that they insure
29:25
SPEAKER_00: their property,
29:26
SPEAKER_00: they insure themselves in terms of health.
29:28
SPEAKER_00: So when you now tax...
29:30
SPEAKER_00: everything, every other expense that is related to that service, then it becomes very, very costly.
29:36
SPEAKER_00: There are some other exemptions that finance bills proposes to remove.
29:42
SPEAKER_00: What I need to say is that there is a difference between what exemption and zero rating.
29:47
SPEAKER_00: exemption is at zero,
29:49
SPEAKER_00: yes,
29:50
SPEAKER_00: but the services or the people who are VAT exempt are not able to claim input VAT
29:57
SPEAKER_00: on their supplies,
29:58
SPEAKER_00: whereas for a zero-rated product,
30:01
SPEAKER_00: you can be able to claim a VAT
30:04
SPEAKER_00: input VAT incurred on that product or that service,
30:07
SPEAKER_00: and therefore making it cheaper because you have a credit of the input VAT.
30:12
SPEAKER_00: So what are some of these proposals that the government or the Finance Bureau is
30:16
SPEAKER_00: intending to remove the VAT exemption?
30:19
SPEAKER_00: So currently,
30:20
SPEAKER_00: taxable goods for direct and exclusive use in construction of tourism facilities,
30:25
SPEAKER_00: recreation parks,
30:26
SPEAKER_00: probably
30:27
SPEAKER_00: Those construction or those goods that are used in the construction of those facilities are exempt.
30:33
SPEAKER_00: So there is a proposal to introduce VAT on that.
30:37
SPEAKER_00: Then typically or specially designed locally assembled motor vehicles for transport of tories.
30:42
SPEAKER_00: So you see those trucks that carry tories and if they are assembled locally, they are exempt.
30:48
SPEAKER_00: from VAT.
30:50
SPEAKER_00: So there is a proposal to remove that VAT exemption,
30:53
SPEAKER_00: meaning that those motor vehicles,
30:55
SPEAKER_00: if this bill passes as it is,
30:57
SPEAKER_00: then those motor vehicles will be subject to VAT.
31:01
SPEAKER_00: And the question,
31:02
SPEAKER_00: of course,
31:03
SPEAKER_00: is if you are looking at an intention to promote tourism and then you introduce VAT
31:11
SPEAKER_00: on the construction of the tourism facilities on the motor vehicles,
31:15
SPEAKER_00: then what are you saying?
31:16
SPEAKER_00: Are you looking to grow the tourism sector or are you discouraging investment in that sector?
31:23
SPEAKER_00: It is unfortunate, but that's what it is.
31:26
SPEAKER_00: I hope some of these proposals will not pass through.
31:29
SPEAKER_00: Then the other one I can mention,
31:32
SPEAKER_00: current electric bicycles,
31:34
SPEAKER_00: solar and lithium batteries,
31:36
SPEAKER_00: electric buses are zero rated.
31:39
SPEAKER_00: There is a proposal to introduce V8 on those flights.
31:43
SPEAKER_00: There are other numerous proposals,
31:45
SPEAKER_00: like for instance,
31:46
SPEAKER_00: the agricultural sector,
31:48
SPEAKER_00: so provisional inputs and raw materials,
31:51
SPEAKER_00: which are used to manufacture agricultural pet products.
31:54
SPEAKER_00: Those ones have been reiterated, but now they will be exempt.
31:59
SPEAKER_00: So if this goes through, then the expectation is that because
32:02
SPEAKER_00: exemption, you cannot claim input VAT, then the cost of these items will go high.
32:08
SPEAKER_00: Definitely,
32:08
SPEAKER_00: the ripple effect is that the end user or the farmer will have to cough in
32:13
SPEAKER_00: additional money and hopefully that will be the price of the product in the market.
32:18
SPEAKER_02: Those ones are the ones that I can mention.
32:21
SPEAKER_02: Yes, thank you for that.
32:22
SPEAKER_02: So the next thing I wanted us to discuss is on the changes specifically regarding
32:27
SPEAKER_02: pension and accessing retirement benefits.
32:29
SPEAKER_02: So can you give us a little bit of a breakdown on what happened there?
32:33
SPEAKER_02: So they've deleted the provision that says retirement benefits collected after the
32:38
SPEAKER_02: age 65 are tax exempt and replaced it with
32:43
SPEAKER_02: payment of pension funds from a fund after the attainment of the retirement age
32:47
SPEAKER_02: determined by the rules of the fund.
32:50
SPEAKER_02: So generally most funds have the retirement age anywhere between 55 and 60 years.
32:57
SPEAKER_02: So the pension benefits payment will be exempt from tax,
33:00
SPEAKER_02: so long as you collect it after the retirement age.
33:03
SPEAKER_02: If you retire due to ill health, then you can also collect your pensions tax-free.
33:07
SPEAKER_02: If you withdraw after 20 years from the date you registered into that fund,
33:12
SPEAKER_02: Also, you'll collect that money tax-free.
33:15
SPEAKER_02: So those are the provisions that have been incorporated into the income tax act.
33:19
SPEAKER_02: And one more thing, there's a change in family trusts, right?
33:22
SPEAKER_02: Could you expound on that a little bit?
33:23
SPEAKER_02: Yes.
33:24
SPEAKER_02: So recently,
33:25
SPEAKER_02: the family trusts were incorporated into the trustees perpetual succession act and
33:31
SPEAKER_02: consequential amendments were put into the income tax act.
33:35
SPEAKER_02: Some of the provisions of the income tax include the income of the registered
33:40
SPEAKER_02: family trusts are exempt from income tax and any capital gains that are incurred at
33:47
SPEAKER_02: the point of transferring property into the trust are also exempt.
33:52
SPEAKER_02: So they're proposing to remove those two exemptions in this bill.
33:55
SPEAKER_02: And what does that mean practically now?
33:57
SPEAKER_02: So if you have a trust,
33:59
SPEAKER_02: remember a trust is a vehicle that is used to manage your estate,
34:05
SPEAKER_02: to manage succession,
34:07
SPEAKER_02: and also to protect wealth in a multi-generational way.
34:11
SPEAKER_02: So the income that is derived into the trust ideally should be tax-free.
34:16
SPEAKER_02: And then the beneficiaries of the trust will be taxed at the point of which they
34:21
SPEAKER_02: draw money out of that trust in accordance with the trust deed.
34:25
SPEAKER_02: So now every income that goes into the trust will be subject to tax,
34:29
SPEAKER_02: just like any other entity,
34:31
SPEAKER_02: any other corporate entity.
34:33
SPEAKER_02: And then the beneficiary will get the income tax-free.
34:38
SPEAKER_02: When you're transferring properties,
34:39
SPEAKER_02: say you have a piece of land somewhere,
34:42
SPEAKER_02: you have a building somewhere,
34:43
SPEAKER_02: and you want to move that building into the trust,
34:46
SPEAKER_02: then any capital gains that crystallize at that point of transfer will then be
34:51
SPEAKER_02: subject to capital gains tax at 15%.
34:55
SPEAKER_02: Presently, such transfer does not trigger capital gains tax.
35:00
SPEAKER_02: And what would that mean then going forward?
35:02
SPEAKER_02: Would people avoid using trusts or maybe transfers would be minimal?
35:07
SPEAKER_02: So definitely moving properties into a trust then would create a serious disincentive.
35:13
SPEAKER_02: And now people then would now fall back to the exemptions under the ETH schedule.
35:19
SPEAKER_02: Instead of using a trust,
35:20
SPEAKER_02: if you have not created one,
35:23
SPEAKER_02: then you'll be more likely to use what is called a family company.
35:27
SPEAKER_02: So a family company, they transfer any property into a family company.
35:31
SPEAKER_02: That is a company that is owned by an individual and his children and or with a spouse.
35:36
SPEAKER_02: Such a transfer will be exempt from capital gains tax.
35:41
SPEAKER_02: So there'll be then a disincentive to use trusts and people will start using companies instead.
35:47
SPEAKER_02: Because sometimes the capital gain can create a very big disincentive to move the property into a trust.
35:54
SPEAKER_02: Unless then you're moving that property into the trust for cash,
35:57
SPEAKER_02: then the cash will be used to develop the property.
36:01
SPEAKER_02: But a physical property, yes, will be a disincentive to move it to a trust.
36:05
SPEAKER_02: Thank you, Anitzola.
36:06
SPEAKER_02: Karambu,
36:07
SPEAKER_02: now over to you in terms of the changes in excise duty,
36:10
SPEAKER_02: significant one in impacting M-Pesa past.
36:13
SPEAKER_01: First on the M-Pesa,
36:15
SPEAKER_01: what has happened is previously excise duty had gone down from 20% to 15% and I had
36:20
SPEAKER_01: looked at that as
36:24
SPEAKER_01: The government is trying to make sure that Kenyans are still bankable and that they can transfer.
36:30
SPEAKER_01: Basically,
36:31
SPEAKER_01: the movement of money within the economy,
36:33
SPEAKER_01: when this was reversed within such a short period of time,
36:36
SPEAKER_01: back to the 20% and then other fees.
36:40
SPEAKER_01: adapt to the fees that are now accessible,
36:45
SPEAKER_01: then what I see is the government trying to reduce the use of M-Pesa services
36:51
SPEAKER_01: because definitely 5% on your fees for anything you do is a large amount of money.
36:58
SPEAKER_01: I think if you use M-Pesa frequently and you check the amount of fees that you pay, it's quite
37:05
SPEAKER_01: high already.
37:06
SPEAKER_01: So when you add in the excise tax on that,
37:10
SPEAKER_01: even if we are trying to raise more revenue,
37:12
SPEAKER_01: when you add the excise tax on that,
37:14
SPEAKER_01: then it becomes very expensive for the mana enchi.
37:17
SPEAKER_01: And especially at a period like now,
37:19
SPEAKER_01: when there's a lot of complaints from everyone about how they're not doing well economically.
37:24
SPEAKER_01: So increasing this fee for me is a no.
37:28
SPEAKER_01: It's something I don't agree with.
37:30
SPEAKER_01: It's something I would recommend to be rejected.
37:33
SPEAKER_01: And then just note that I think they've done that on fees for transfer, the fees on telephone and data.
37:39
SPEAKER_01: They say money transfers everywhere from all providers.
37:43
SPEAKER_01: So then that becomes a big problem.
37:45
SPEAKER_02: All right.
37:45
SPEAKER_02: Any other expense duty impacting transactions before we go to Ruth for some change
37:50
SPEAKER_02: in their tax prepayment?
37:52
SPEAKER_01: We have a few changes on rates.
37:57
SPEAKER_01: But before we get to the rates, there are some things I need to clarify.
38:00
SPEAKER_01: Some changes that have come through, I think some are good for the business person.
38:05
SPEAKER_01: One is like when we've had unity on classification,
38:09
SPEAKER_01: because if you looked at the first schedule to the Excise Duty Act,
38:14
SPEAKER_01: you would find that a lot of naming was not the same as what you find in the East Office.
38:19
SPEAKER_01: african custom management act and therefore just knowing how to classify the goods
38:24
SPEAKER_01: whether these your goods are accessible or what exact tax rates apply to a certain
38:30
SPEAKER_01: product sometimes could be very tedious for the business one you don't necessarily
38:34
SPEAKER_01: need to take your samples to carry to have an idea of what sales you should pay i
38:39
SPEAKER_01: believe that and therefore this change is is
38:43
SPEAKER_01: much welcome and the other is the introduction of a timeline during which an excise
38:49
SPEAKER_01: license should be issued i would have a contention with the number of days making
38:54
SPEAKER_01: it about the 14 days
38:57
SPEAKER_01: just a bit but the the thing is that in a lot of government offices you declare
39:01
SPEAKER_01: everything and then of course there are those delays that make you wonder whether
39:05
SPEAKER_01: you have a right as a kenyan as a taxpayer and so when we have an introduction of
39:10
SPEAKER_01: timelines in many departments then something like this would happen whereby you
39:15
SPEAKER_01: reduce your setting that when you apply for these
39:19
SPEAKER_01: permit when you apply for this license,
39:21
SPEAKER_01: provided you have given all the information,
39:24
SPEAKER_01: you will get a response saying yes or no within a specified timeline.
39:29
SPEAKER_01: This is a very good change.
39:31
SPEAKER_01: On the issue of tax rates,
39:34
SPEAKER_01: before the tax rates first,
39:36
SPEAKER_01: for those of you who are not aware,
39:38
SPEAKER_01: the Finance Act 2023 introduced a new timeline for payment for remission of taxes
39:44
SPEAKER_01: by manufacturers of alcoholic beverages.
39:47
SPEAKER_01: They were not allowed to pay the taxes on or by the 20th of the succeeding month,
39:52
SPEAKER_01: but they had to remit excise taxes for any deliveries or any goods that left the
39:57
SPEAKER_01: excise stockroom within 24 hours from that delivery.
40:02
SPEAKER_01: And you can imagine the issues with having to have those frequent transfers and the
40:07
SPEAKER_01: timeliness and the rushing ETC.
40:09
SPEAKER_01: And obviously having to make such payments for business so often might not be the
40:15
SPEAKER_01: best thing,
40:15
SPEAKER_01: especially because it's not guaranteed that he receives payment immediately as well.
40:21
SPEAKER_01: And the reason why that had been done,
40:23
SPEAKER_01: first of all,
40:24
SPEAKER_01: was because of a lot of non-compliance within the industry,
40:27
SPEAKER_01: which was in terms of evasion,
40:29
SPEAKER_01: and of course,
40:30
SPEAKER_01: people not remitting the correct amounts of this when it comes to payment.
40:35
SPEAKER_01: And so as one of the compliance and enforcement tools, this was put in place through legislation.
40:41
SPEAKER_01: And I think through the industry,
40:44
SPEAKER_01: Going back and forth with the Ministry ETC,
40:46
SPEAKER_01: this has been rectified and it has been extended to five days.
40:50
SPEAKER_01: I hope this works for them.
40:52
SPEAKER_01: Yeah,
40:53
SPEAKER_01: and now on the tax changes,
40:55
SPEAKER_01: there's been increased rates for various goods and changes on which goods payments
41:02
SPEAKER_01: are done or not.
41:03
SPEAKER_01: I think at the beginning I mentioned about motorcycles where excise duty has been
41:08
SPEAKER_01: dropped on all motorcycles apart from motorcycles of a specific tariff.
41:14
SPEAKER_01: And that tariff talks about electronic motorcycles or motorcycles with an
41:19
SPEAKER_01: electronic motor apart from if it's in an ambulance or it's locally assembled.
41:24
SPEAKER_01: And it increases the tax rate,
41:26
SPEAKER_01: not just itself being left tax,
41:28
SPEAKER_01: but it increases the tax rate by 1,300 shillings or thereabouts.
41:33
SPEAKER_01: or a total excise duty of 10%.
41:35
SPEAKER_01: So before it was 11,608.
41:37
SPEAKER_01: And now for only electronic motorcycles, we have 12,952.
41:42
SPEAKER_01: For me,
41:44
SPEAKER_01: it shows that we are making electric motorcycles more expensive and therefore
41:49
SPEAKER_01: discouraging their use.
41:51
SPEAKER_01: Yeah,
41:51
SPEAKER_01: so when we see our dirty border borders on the street and we wish they could adapt
41:56
SPEAKER_01: use of electric motorcycles,
41:57
SPEAKER_01: then of course attacks like this will not be encouraging for them to move to
42:02
SPEAKER_01: electric motor motorcycles.
42:05
SPEAKER_01: The other thing in
42:06
SPEAKER_01: And I think this is a win for public health and the tobacco control advocacy is
42:12
SPEAKER_01: that the excise rates for cigarettes with filters and the cigarettes without
42:17
SPEAKER_01: filters have been matched.
42:18
SPEAKER_01: So we have a uniform excise rate for clarity for most of us.
42:23
SPEAKER_01: Kenya is a signatory to the Framework Convention on Tobacco Control.
42:27
SPEAKER_01: And one of the requirements for the parties is you should have a uniform excise.
42:31
SPEAKER_01: tax rates.
42:32
SPEAKER_01: Of course, we are not going to encourage anyone to shift from filter to non-filter using lower tax rates.
42:39
SPEAKER_01: That's not something that you'd wish to see happen.
42:42
SPEAKER_01: In fact, the goal is to have less and less people resulting to smoking.
42:46
SPEAKER_01: And so this is a welcome move, the uniform rate and the increase to 4,100.
42:52
SPEAKER_01: Of course, I would love to see a date where we have higher excise duty to
42:58
SPEAKER_01: retail price the percentage to be higher i think the recommended is 70 currently we
43:04
SPEAKER_01: are at about 26 let's see whether we'll have an overshifting or under shifting or a
43:09
SPEAKER_01: consumption of the taxes that have been
43:14
SPEAKER_01: and see how that will affect the excise duty to retail price.
43:18
SPEAKER_01: Then there's some increase in the products containing nicotine and of course liquid
43:25
SPEAKER_01: nicotine for electronic cigarettes.
43:27
SPEAKER_01: And I think I would be preaching to the choir if I started explaining to you the
43:32
SPEAKER_01: issues that we are facing as a country and out of the consumption of nicotine
43:37
SPEAKER_01: products by our youth.
43:38
SPEAKER_01: And so the increase in tax is welcome.
43:41
SPEAKER_01: And hopefully in the future, we'll see this increase as from a public health perspective.
43:46
SPEAKER_01: And my hope is that in future,
43:49
SPEAKER_01: we see more and more of Ministry of Health getting involved in tax policy
43:55
SPEAKER_01: concerning products that are of a health concern.
43:58
SPEAKER_01: The other cue is that there is a change in how alcoholic products are taxed.
44:05
SPEAKER_01: In the current regime,
44:06
SPEAKER_01: we have a specific rate for beer and the spiritual beverages of an alcoholic
44:11
SPEAKER_01: strength of less than 6%,
44:13
SPEAKER_01: what people refer mostly as ready-to-drink beverages.
44:16
SPEAKER_01: And we have a rate for spirits of undenied spirits.
44:20
SPEAKER_01: ethyl alcohol, anything that is above six percent, the whiskeys, the vodka, the pure ethanol.
44:26
SPEAKER_01: So there is a rate,
44:27
SPEAKER_01: a current rate,
44:28
SPEAKER_01: which is just per litre,
44:31
SPEAKER_01: and then wines have their own rate per litre.
44:33
SPEAKER_01: So what the Finance Bill 2024 proposes is a shift from this excise duty rate
44:40
SPEAKER_01: per liter to a specific rate per alcohol content that is one beverage specific.
44:48
SPEAKER_01: So there's one that is beer,
44:50
SPEAKER_01: there's one that is spirit and wine,
44:51
SPEAKER_01: and then the concentration brackets or the concentration.
44:55
SPEAKER_01: And therefore, beverages with a higher alcohol concentration attract higher taxes.
45:01
SPEAKER_01: So if you are making a product that is 40% and another product that is 32%,
45:05
SPEAKER_01: obviously you pay different taxes.
45:09
SPEAKER_01: Now,
45:10
SPEAKER_01: I did not know what formulas the treasury used to come up with the excise duty
45:17
SPEAKER_01: rates that they have come up with.
45:19
SPEAKER_01: I think any way of dealing with tax policy on beverages is quite difficult,
45:24
SPEAKER_01: whether you're dealing with a specific rate or a valour,
45:27
SPEAKER_01: which I certainly hope not to see around.
45:31
SPEAKER_01: And then the evolution currently is basically to charge according to the alcoholic
45:37
SPEAKER_01: content of the product.
45:39
SPEAKER_01: But anyway, depending on enforcement capacity and many other external factors, then
45:46
SPEAKER_01: tax policy would always have some level of complexity.
45:50
SPEAKER_01: And so with the new change,
45:51
SPEAKER_01: then we have beer taxes going a little lower and for spiritual beverages,
45:57
SPEAKER_01: spirits going a little higher.
45:59
SPEAKER_01: There's an increase in for spirits and a reduction for beer.
46:02
SPEAKER_01: I'm not sure what advises the reduction of taxes of
46:06
SPEAKER_01: beer because alcohol is alcohol.
46:08
SPEAKER_01: There is no alcohol with less effect.
46:10
SPEAKER_01: Of course,
46:11
SPEAKER_01: alcohol that takes a longer period in the system to be ingested,
46:15
SPEAKER_01: ETC,
46:16
SPEAKER_01: like the beer,
46:17
SPEAKER_01: and that might be seen to have a lower rate of having issues with the health of the person,
46:22
SPEAKER_01: then less taxes than the higher taxes.
46:25
SPEAKER_01: But my view is alcohol is alcohol.
46:28
SPEAKER_01: And I would be very concerned if we worked towards going reducing the taxation on the product.
46:35
SPEAKER_01: There's one that Mokaya mentioned that I know for many people is a pain when you
46:40
SPEAKER_01: have the proposal for introduction of excise duty on vegetable oils.
46:45
SPEAKER_01: Now,
46:46
SPEAKER_01: I will still speak as a health tax person where there isn't much that I would need
46:51
SPEAKER_01: to add on the effects of trans fat on the human being.
46:55
SPEAKER_01: So when we talk about vegetable oils,
46:57
SPEAKER_01: of course,
46:58
SPEAKER_01: I would want to see a situation whereby that the healthier products are
47:03
SPEAKER_01: are less than the transfer that you would want to see things like olive oil that is
47:09
SPEAKER_01: safer for the use by the person attracting less than the yellow jerry can of
47:14
SPEAKER_01: cooking oil that we buy because of course we know the dangers that it has and one
47:18
SPEAKER_01: of the reasons i was talking about the ministry of health being involved in such
47:21
SPEAKER_01: matters is because i believe they should also be on the front line getting
47:25
SPEAKER_01: indicating the masses on the dangers of using water and all that in order to see
47:30
SPEAKER_01: People transform how they live their lives, change behavior, as the taxes might not be enough.
47:37
SPEAKER_01: The thing,
47:38
SPEAKER_01: though,
47:38
SPEAKER_01: is I do not think the Treasury introduced this tax for health purposes,
47:43
SPEAKER_01: but rather as an avenue to collect more revenue.
47:49
SPEAKER_02: I agree with you on that last statement.
47:51
SPEAKER_01: Even the structuring and everything, I highly doubt that was an item for consent.
47:55
SPEAKER_02: All right.
47:56
SPEAKER_02: Now,
47:56
SPEAKER_02: one of the things I want us maybe to have a look into is some changes in the Income
48:01
SPEAKER_02: Tax Procedures Act.
48:03
SPEAKER_02: Could you explain to us a little bit what that means in terms of the exclusion of
48:08
SPEAKER_02: weekends and public holidays from the computation of the tax period?
48:11
SPEAKER_00: All right.
48:13
SPEAKER_00: Thank you, Mokaya.
48:14
SPEAKER_00: I will go through some of the proposals that are in the Tax Procedures Act.
48:19
SPEAKER_00: And the first one is the inclusion of weekend public holidays from the computational tax period.
48:27
SPEAKER_00: And probably to give an example, we file our VAT return on or before the 20th day of the month.
48:35
SPEAKER_00: So we count the days.
48:37
SPEAKER_00: based on the calendar days and not the working days.
48:41
SPEAKER_00: So what this proposal aims to do is to exclude Sundays,
48:46
SPEAKER_00: Saturdays and public holidays from the period,
48:50
SPEAKER_00: meaning that if a VAT return is due
48:53
SPEAKER_00: by 20th and 20th falls on a holiday, then you can submit it on the next working day.
49:00
SPEAKER_00: What needs to be done?
49:01
SPEAKER_00: This is a good proposal.
49:03
SPEAKER_00: However,
49:04
SPEAKER_00: the ITAC system needs to be configured in such a way that it allows for such,
49:10
SPEAKER_00: because currently when you file a return on
49:13
SPEAKER_00: 20th or 21st, despite 20th being a Sunday, it will attract a penalty.
49:19
SPEAKER_00: And this provision is not just for tax.
49:22
SPEAKER_00: Anything related to taxes,
49:25
SPEAKER_00: for instance,
49:25
SPEAKER_00: a notice if you need to file an objection,
49:29
SPEAKER_00: any other document that relates to tax matters,
49:32
SPEAKER_00: then if the due date falls on a holiday or on a Saturday or on a Sunday,
49:38
SPEAKER_00: then you consider the next working day.
49:42
SPEAKER_00: The other proposal on objections.
49:45
SPEAKER_00: Currently,
49:46
SPEAKER_00: the law allows a taxpayer who is aggrieved by a decision that has been issued by
49:52
SPEAKER_00: the commissioner to file an objection within 30 days.
49:56
SPEAKER_00: Thereafter, the commissioner has an obligation to respond to that objection within a period of 60 days.
50:03
SPEAKER_00: So what the proposal is aimed at doing is extending the period within which the
50:09
SPEAKER_00: commissioner can respond to your objection.
50:12
SPEAKER_00: Currently, 60 days, but there's a proposal to extend that to 90 days.
50:17
SPEAKER_00: But now the question of fairness comes in because if us as taxpayers,
50:22
SPEAKER_00: we are given 30 days to file a notice of objection and KRA has 60 days to respond
50:29
SPEAKER_00: to the note.
50:29
SPEAKER_00: They have not been extended to 90 days.
50:32
SPEAKER_00: Then why also not give taxpayers an extension to be able to also put in the
50:39
SPEAKER_00: necessary paperwork to file their notices of objection.
50:42
SPEAKER_00: Then there is a proposal again on objection decisions.
50:46
SPEAKER_00: Finance Bill is proposing to introduce a provision which says that if you file a
50:52
SPEAKER_00: notice of objection,
50:53
SPEAKER_00: if you agree,
50:54
SPEAKER_00: then you file a notice.
50:55
SPEAKER_00: and you are not able to provide documents that are requested in the course of the objection,
51:02
SPEAKER_00: then your objection is deemed disallowed.
51:05
SPEAKER_00: So the question is at what point,
51:07
SPEAKER_00: because if you file your objection today,
51:09
SPEAKER_00: then a request comes in for documents and you are taking some time maybe to
51:14
SPEAKER_00: retrieve some of these documents.
51:16
SPEAKER_00: At what point will the objection be deemed to be disallowed?
51:20
SPEAKER_00: So there is no clarity on that, but disallowed.
51:22
SPEAKER_00: The proposal is that if you do not provide the information that has been requested,
51:27
SPEAKER_00: then your objection will be deemed to be disallowed.
51:30
SPEAKER_00: The other proposal is a proposal to reintroduce what we call abandonment of taxes.
51:37
SPEAKER_00: So previously there was this proposal, but it was scrapped by the Finance Act of 2023.
51:42
SPEAKER_00: So what is this?
51:45
SPEAKER_00: The finance bill is seeking to do is to reintroduce the provision to allow or to
51:50
SPEAKER_00: give the commissioner powers to not recover certain debts.
51:55
SPEAKER_00: And what are the circumstances?
51:57
SPEAKER_00: So if the commissioner has written to the cabinet secretary saying that it is very
52:03
SPEAKER_00: impossible to recover this debt or the expenses that the commissioner is going to
52:08
SPEAKER_00: incur to collect the debt is more than...
52:11
SPEAKER_00: the tax that is trying to be recovered.
52:14
SPEAKER_00: Or if there is any hardship,
52:16
SPEAKER_00: for instance,
52:17
SPEAKER_00: if somebody has been declared bankrupt or a company has become insolvent,
52:23
SPEAKER_00: so the commissioner will have powers to abandon the tax.
52:27
SPEAKER_00: So it's a good proposal because there are those instances where taxpayer get into
52:32
SPEAKER_00: situation where they cannot pay the taxes.
52:35
SPEAKER_00: The question is what measures are there
52:38
SPEAKER_00: to ensure that this provision is not misused by people saying that they cannot be, but ideally can be.
52:45
SPEAKER_00: Then there is currently a provision in the law which provides for exemption from
52:52
SPEAKER_00: withholding VAT for investors who have invested at least 3 billion shillings.
52:57
SPEAKER_00: There is a proposal to eliminate that withholding VAT exemption.
53:02
SPEAKER_00: It's to say that they will not,
53:03
SPEAKER_00: when you are supplying or when you're dealing with such persons,
53:07
SPEAKER_00: then they will not qualify to be exempt from withholding virtue obligation.
53:10
SPEAKER_00: So the expectation is that you would deduct withholding tax on their supply.
53:15
SPEAKER_00: The one is for export processing zone or export processing zone enterprises.
53:21
SPEAKER_00: There is a proposal to reduce the penalty because currently the penalty is $2,000
53:26
SPEAKER_00: per day for failure to file or to submit the documents that they are required to submit.
53:32
SPEAKER_00: But the proposal is to change this to 20,000 per month instead of a penalty of 2,000 per day.
53:40
SPEAKER_00: There is also an interesting one where the finance bill is proposing to give powers
53:45
SPEAKER_00: to care to do immigration too.
53:48
SPEAKER_00: your accounting or your reporting system.
53:51
SPEAKER_00: So if you have a certain accounting system or an AP,
53:54
SPEAKER_00: the finance bill proposes to give powers to the commissioner to integrate so data
54:00
SPEAKER_00: or your sales and your stock data is submitted to carry on a real-time basis.
54:07
SPEAKER_00: And the offense is you do not submit data is two million per month.
54:12
SPEAKER_00: So this is a very punitive proposal.
54:15
SPEAKER_00: And the question is, we have been talking about the confidentiality and all.
54:20
SPEAKER_00: So if you have to integrate into a taxpayer's settlement.
54:24
SPEAKER_00: know whether it will increase disputes,
54:26
SPEAKER_00: but I expect and I foresee a situation to increase disputes in terms of how much
54:31
SPEAKER_00: information does CARE need to see or what do they need to do.
54:37
SPEAKER_00: So that's it about the Tax Procedure Act.
54:41
SPEAKER_00: I can't remember any other stuff about this on the tax procedures.
54:46
SPEAKER_02: I think we came at the major drag in terms of the final bill so far.
54:51
SPEAKER_02: Karambu,
54:51
SPEAKER_02: did I miss out on some things to do with excise duty that you wanted to highlight a
54:55
SPEAKER_02: bit more before we open up the floor for questions?
54:58
SPEAKER_01: On excise duty,
54:59
SPEAKER_01: I think what I needed to add is that apart from the vegetable oil,
55:04
SPEAKER_01: we also have the inclusion of,
55:08
SPEAKER_01: I think,
55:08
SPEAKER_01: coal to be excisable.
55:09
SPEAKER_01: And then there is the introduction, I'm sure last year we had the Finance Act.
55:15
SPEAKER_01: 2023 introduced the excise duty on advertisements on TV, newspaper and billboards.
55:21
SPEAKER_01: And so this year what has happened is the same has been extended to internet and social media platforms.
55:29
SPEAKER_01: Of course,
55:29
SPEAKER_01: this ensures that there's consistency in taxation across the various platforms and
55:34
SPEAKER_01: because gambling and all that is
55:38
SPEAKER_01: Of course,
55:38
SPEAKER_01: we have,
55:39
SPEAKER_01: I'll not call it a small issue,
55:40
SPEAKER_01: to one of the things to reduce gaming,
55:45
SPEAKER_01: of course,
55:45
SPEAKER_01: was to increase exercise duty and betting was to increase exercise duty.
55:50
SPEAKER_01: And the introduction of exercise duty on the advertisements becomes one of the measures.
55:57
SPEAKER_02: There was a quick one where you were talking about gusts.
56:01
SPEAKER_02: In the East African region?
56:02
SPEAKER_00: No, not gas.
56:03
SPEAKER_00: It's an addition to an excess duty.
56:06
SPEAKER_00: Currently, imported eggs, onions, and potatoes attract excess duty.
56:12
SPEAKER_00: But there is a proposal to exclude the East African countries from that provision.
56:18
SPEAKER_00: And my concern is local farmers keep on complaining about the prices for products
56:24
SPEAKER_00: that are coming from Africa.
56:26
SPEAKER_00: Uganda, Tanzania.
56:28
SPEAKER_00: So now,
56:29
SPEAKER_00: given that there is a proposal to remove excess duty on those products,
56:33
SPEAKER_00: then the question is,
56:34
SPEAKER_00: will the local farmers be able to compete with East African produce and what does
56:39
SPEAKER_00: it mean?
56:40
SPEAKER_02: Well,
56:41
SPEAKER_02: in terms of the East African community,
56:43
SPEAKER_02: there's been contention as to whether or not we can charge duties on products that
56:48
SPEAKER_02: are produced within the territory of the East African community.
56:52
SPEAKER_02: And to my understanding,
56:53
SPEAKER_02: there has been a case where the government lost on imposing excess duties on
56:58
SPEAKER_02: products that are manufactured or produced within the East African region.
57:02
SPEAKER_02: So this has been something that has been long outstanding in terms of implementation.
57:07
SPEAKER_02: Just to be clear,
57:08
SPEAKER_02: as per the East African Community Protocol,
57:10
SPEAKER_02: that all products that are manufactured or produced within the East African region
57:15
SPEAKER_02: are not subjected to duties because it
57:19
SPEAKER_01: I think one of the concerns I would have with how we deal with exercise duty to
57:28
SPEAKER_01: protect our domestic cycle.
57:31
SPEAKER_01: They're not supposed to be used as a tool to protect the local environment.
57:37
SPEAKER_01: manufacturers or farmers.
57:38
SPEAKER_01: So when we do that, then we mess up with the agreements, the ESC, COMESA, ETC.
57:46
SPEAKER_01: So if really the government is looking at protecting local manufacturers and agriculture,
57:54
SPEAKER_01: the tool to use is import taxes.
57:56
SPEAKER_01: Nobody will take you to court for import taxes.
57:59
SPEAKER_01: If we keep using excise duties,
58:01
SPEAKER_01: first there was the manufacture of glass bottles,
58:03
SPEAKER_01: and then there was the manufacture of plastic bottles,
58:07
SPEAKER_01: and then there was the onions,
58:08
SPEAKER_01: and there is the egg.
58:09
SPEAKER_01: All that, we are missing a point.
58:11
SPEAKER_01: I think what the Treasury should do is consider agreeing with the other regions,
58:17
SPEAKER_01: even with EAC,
58:18
SPEAKER_01: because there are certain things,
58:20
SPEAKER_01: especially from KOMESA,
58:23
SPEAKER_01: Import duty would still apply,
58:24
SPEAKER_01: but using domestic tax,
58:26
SPEAKER_01: for me,
58:27
SPEAKER_01: I struggle to see how that should help because we're the same people who complain
58:32
SPEAKER_01: about importing goods to Tanzania and then being charged an excise duty higher for soldiers,
58:39
SPEAKER_01: ETC,
58:40
SPEAKER_01: when they go to Tanzania and vice versa.
58:42
SPEAKER_01: But we still use the same gimmicks.
58:44
SPEAKER_01: So I think we need to really check out how we play with it.
58:47
SPEAKER_02: All right.
58:48
SPEAKER_02: Aneth, do you have something to add before I open the floor to questions?
58:52
SPEAKER_02: Yes,
58:52
SPEAKER_02: under the Income Tax Act,
58:54
SPEAKER_02: there are some amendments that touch on employment income that are generally good.
59:00
SPEAKER_02: The first is tax-free amount for benefits in kind has been expanded from 36,000
59:07
SPEAKER_02: shillings per year to 48,000 shillings a year.
59:10
SPEAKER_02: The tax-free limit for food or meals provided by an employer of the workplace has
59:15
SPEAKER_02: been expanded from 48,000 shillings to 60,000 shillings in effect.
59:22
SPEAKER_02: 4,000 shillings to 5,000 shillings a month.
59:25
SPEAKER_02: And the benefits for mortgage relief have been expanded from 300,000 to 360,000 shillings per year.
59:35
SPEAKER_02: So in effect from 25,000 to 30,000 as the interest relief.
59:39
SPEAKER_02: So I think that is good.
59:41
SPEAKER_02: In terms of per diems,
59:43
SPEAKER_02: you'll recall in the 2023 Finance Act,
59:46
SPEAKER_02: the per diems were exempted from the income tax.
59:50
SPEAKER_02: So the 2,000 shilling limit had not been deleted, but in effect made redundant.
59:55
SPEAKER_02: So that now has been removed.
59:57
SPEAKER_02: So the 2,000 shilling limit has been removed.
1:00:00
SPEAKER_02: But now employers are required to have a travelling policy on how to make payments and account for
1:00:07
SPEAKER_02: a subsistence allowances or per diems.
1:00:10
SPEAKER_02: This per diems should not exceed 5% of the salary of the employee.
1:00:15
SPEAKER_02: I don't know if this is a monthly per diem or the daily per diem.
1:00:20
SPEAKER_02: From my reading, it looks like the 5% capping is the daily rate.
1:00:25
SPEAKER_02: So 5%,
1:00:26
SPEAKER_02: if your salary is a hundred thousand,
1:00:28
SPEAKER_02: your per diem shall not exceed 5% of that amount,
1:00:31
SPEAKER_02: which is 5,000 shillings.
1:00:33
SPEAKER_02: Well, government employees are locked on pardians.
1:00:36
SPEAKER_02: Does that affect them also?
1:00:38
SPEAKER_02: Yeah, potentially it should because the constitution doesn't allow a discrimination.
1:00:43
SPEAKER_02: This will be fairness.
1:00:45
SPEAKER_02: So potentially it would apply.
1:00:48
SPEAKER_02: So probably SRC will have to review their rates.
1:00:51
SPEAKER_02: However, but this 5% cap will not be appropriate for international travel.
1:00:57
SPEAKER_02: It may create difficulties in implementation if you have to go through
1:01:01
SPEAKER_02: A country where the cost of living is very high, especially European countries.
1:01:06
SPEAKER_02: And this rate that I've applied here on the daily rate rules improves significant restriction.
1:01:12
SPEAKER_02: So I don't know how this needs to be revised.
1:01:16
SPEAKER_02: And if I was asked, I would benchmark this on the SRC rate.
1:01:21
SPEAKER_02: It is more or less fair.
1:01:24
SPEAKER_02: All right, so that's what I wanted to add.
1:01:26
SPEAKER_02: Okay.
1:01:26
SPEAKER_02: A lot to unpack.
1:01:28
SPEAKER_02: I think in the last hour and a half, lots of content.
1:01:30
SPEAKER_02: So I think if you're overwhelmed, it's okay.
1:01:33
SPEAKER_02: We will produce this as a podcast and then you can listen to it very slowly and of
1:01:37
SPEAKER_02: course provide you the PDF and then you can go through some of the questions and
1:01:41
SPEAKER_02: then we'll have another session on this sometime soon again to clarify some of the
1:01:45
SPEAKER_02: things that we may have not clarified today.
1:01:47
SPEAKER_02: So that's one thing to note now.
1:01:50
SPEAKER_02: but are always available.
1:01:51
SPEAKER_02: If you write your question and you tag us,
1:01:53
SPEAKER_02: we'll definitely be able to forward them to the appropriate experts in the team.
1:01:58
SPEAKER_02: I should say also that I think one thing that I've noted,
1:02:01
SPEAKER_02: and I think Amboko suggested this,
1:02:02
SPEAKER_02: if you want to make your responses to Parliament on some of these provisions,
1:02:06
SPEAKER_02: just select a few provisions.
1:02:08
SPEAKER_02: One, two, three.
1:02:09
SPEAKER_02: Something that affects you that you can analyze very quickly.
1:02:13
SPEAKER_02: Create a three column document.
1:02:15
SPEAKER_02: Just column one, just write the specific provision that you want to comment about.
1:02:19
SPEAKER_02: And column two, make a specific suggestion.
1:02:22
SPEAKER_02: And then column three, you can put a bit of justification on this.
1:02:25
SPEAKER_02: And if you need some help from an expert, tax expert, maybe to draft that to be very important.
1:02:30
SPEAKER_02: It's very important to participate in this process.
1:02:32
SPEAKER_02: Sometimes it feels very like some of our suggestions don't go through,
1:02:35
SPEAKER_02: but actually Parliament does go through a lot of these provisions that get forwarded.
1:02:41
SPEAKER_02: Sometimes it may not impact these years.
1:02:44
SPEAKER_02: It can also be featured in maybe the following years in terms of them listening to you.
1:02:49
SPEAKER_02: and your suggestions.
1:02:49
SPEAKER_02: So don't despair.
1:02:50
SPEAKER_02: Please make sure to swamp parliament with as many of your suggestions as possible.
1:02:55
SPEAKER_02: And I can see a lot of things are on the motor vehicle tax.
1:02:58
SPEAKER_02: Just make sure that don't just tweet about it,
1:03:01
SPEAKER_02: but we also actually take time to draft a proposal and send it to parliament.
1:03:05
SPEAKER_02: And so it can be hard at the end of the day.
1:03:07
SPEAKER_02: So a couple of questions before we wind up.
1:03:10
SPEAKER_02: So I want to start with two, which we did not maybe touch about.
1:03:14
SPEAKER_02: One is KRA being exempted from the data protection app.
1:03:17
SPEAKER_02: It's
1:03:17
SPEAKER_02: And number two,
1:03:18
SPEAKER_02: there's a proposal which suggests that the infrastructure bonds,
1:03:21
SPEAKER_02: especially those,
1:03:22
SPEAKER_02: I think within less than a period of three years,
1:03:24
SPEAKER_02: will be no longer be tax exempt.
1:03:26
SPEAKER_02: So any of you who wants to comment on those two, I'll be as I also look around for a few more questions.
1:03:32
SPEAKER_02: So with data protection,
1:03:33
SPEAKER_02: since you operate a self-assessment regime,
1:03:36
SPEAKER_02: there is information asymmetry where you know your transactions better than the
1:03:42
SPEAKER_02: revenue authority.
1:03:43
SPEAKER_02: For the revenue authority to be able to do an assessment,
1:03:46
SPEAKER_02: especially in situations where there is fraud or gross and reporting of income,
1:03:53
SPEAKER_02: then KRA would want to use other methods to get information about you.
1:03:57
SPEAKER_02: So it would want to see you in better details.
1:04:00
SPEAKER_02: It would want to see your bank details.
1:04:02
SPEAKER_02: So if a restriction of this nature is imposed and someone has gone to great lengths
1:04:07
SPEAKER_02: to hide income,
1:04:08
SPEAKER_02: then make it very difficult for them then to discharge their responsibilities from
1:04:14
SPEAKER_02: the income tax level.
1:04:15
SPEAKER_02: So the need to exempt them from that data protection requirement is necessary for
1:04:21
SPEAKER_02: them to discharge their responsibility.
1:04:23
SPEAKER_02: Also,
1:04:24
SPEAKER_02: on the other hand,
1:04:25
SPEAKER_02: a lot of restrictions are imposed on revenue officers in terms of confidentiality.
1:04:31
SPEAKER_02: If from a Tax Procedures Act point of view,
1:04:34
SPEAKER_02: from the data protection,
1:04:36
SPEAKER_02: any data breaches or use of that data for purposes other than tax assessment,
1:04:42
SPEAKER_02: yes,
1:04:42
SPEAKER_02: we'll have severe penalties on the officer involved.
1:04:47
SPEAKER_02: So it's expected that they will hold that data with the highest level of privilege and confidence.
1:04:53
SPEAKER_02: What was the next question?
1:04:54
SPEAKER_02: The other one of them,
1:04:55
SPEAKER_02: the interest income being subjected to tax,
1:04:58
SPEAKER_02: I think withholding tax at 5%,
1:04:59
SPEAKER_02: I think that's the suggestion.
1:05:01
SPEAKER_02: Oh, yes.
1:05:01
SPEAKER_02: I think it's still, that one is purely a revenue enhancing measure.
1:05:06
SPEAKER_02: I think once they've seen the interest that was created and given the high interest
1:05:11
SPEAKER_02: rates also,
1:05:11
SPEAKER_02: the interest rates have significantly increased in the last one year.
1:05:15
SPEAKER_02: I think the government wants to recoup a portion of that interest that they are paying out.
1:05:20
SPEAKER_02: When this was being mooted, the rates were lower, but now at
1:05:24
SPEAKER_02: this high rate, it will make sense that they want to recover a chunk of that money.
1:05:29
SPEAKER_02: All right.
1:05:29
SPEAKER_02: I think that's been sufficiently dealt with.
1:05:32
SPEAKER_02: A question on taxing smallholder farmers and their engagement in building the economy.
1:05:37
SPEAKER_02: Is there any suggestion around smallholder farmers being taxed in this finance bill 2024?
1:05:42
SPEAKER_02: And then also there's a question here on maybe a bit of expounding on the eco-taxes that are coming up.
1:05:49
SPEAKER_02: and clean energy and some taxes to help out on clean energy.
1:05:53
SPEAKER_02: So eco-taxes, there's quite an extensive proposition there.
1:05:56
SPEAKER_02: Can you break down a quick one?
1:05:58
SPEAKER_02: Health tax expert.
1:06:00
SPEAKER_01: So someone had asked whether the increase in these taxes contributes to an increase in NCDs in our setup.
1:06:06
SPEAKER_01: And apart from just collecting more revenue,
1:06:09
SPEAKER_01: what else we should foresee as the cost of caring for NCD patients is too high.
1:06:13
SPEAKER_01: One of the jobs or what the treasury is supposed to do when...
1:06:18
SPEAKER_01: giving a budget.
1:06:20
SPEAKER_01: It's not just about collection of revenue.
1:06:22
SPEAKER_01: Let's just have revenue.
1:06:23
SPEAKER_01: We are supposed to collect revenue for development, for the expenses that the government incurs.
1:06:29
SPEAKER_01: Of course, we want to see that they're spending the money well.
1:06:32
SPEAKER_01: And one of the responsibilities to you is your health.
1:06:36
SPEAKER_01: Behind health taxes is not just a tax to reduce your consumption of a product,
1:06:42
SPEAKER_01: but these taxes are supposed also to be used for the benefit of the health of the monoengine.
1:06:50
SPEAKER_01: So if taxes are increased on alcohol and taxes are increased on tobacco or trans fats or sugar and so on,
1:06:58
SPEAKER_01: sugar and sweetened beverages,
1:07:00
SPEAKER_01: then we need to see the government also using these finances to cater for the
1:07:06
SPEAKER_01: management of your health.
1:07:08
SPEAKER_01: So in our health facilities,
1:07:10
SPEAKER_01: them, they should be able to get it for persons who are living with NCDs.
1:07:14
SPEAKER_01: And so they're supposed to plow back these funds to dealing with NCDs.
1:07:18
SPEAKER_01: So many governments I know do not want to do what we call earmarking of funds.
1:07:23
SPEAKER_01: Earmarking is when you take,
1:07:25
SPEAKER_01: like the way we were talking about fuel levy earlier,
1:07:27
SPEAKER_01: when you'd say that the money for fuel levy goes direct to the maintenance of road.
1:07:32
SPEAKER_01: That is earmarking, where those funds cannot be used for anything else.
1:07:36
SPEAKER_01: So many governments will avoid doing that and say that they will budget for the
1:07:42
SPEAKER_01: health needs of the country and of the nation.
1:07:46
SPEAKER_01: And if there is any other requirement of cash, they can always reallocate.
1:07:50
SPEAKER_01: And many consider earmarking as a space where,
1:07:54
SPEAKER_01: I think many ministers of finance,
1:07:55
SPEAKER_01: let me put it that way,
1:07:56
SPEAKER_01: will consider earmarking means that they cannot push other funds towards health
1:08:01
SPEAKER_01: because there's a specific fund for cancer.
1:08:04
SPEAKER_01: We've
1:08:04
SPEAKER_01: All the tobacco taxes are going there, etc.
1:08:06
SPEAKER_01: But that's not entirely true.
1:08:08
SPEAKER_01: You can earmark funds and ensure that these funds that are being collected from
1:08:13
SPEAKER_01: these specific products are going directly for the taking care of the Moana Inchi,
1:08:18
SPEAKER_01: for this and that.
1:08:19
SPEAKER_01: Maybe you can say that the excise duty from motorcycles are taking care of people who are...
1:08:25
SPEAKER_01: Our public hospitals have wards that are full of guys who've had motorcycle accidents.
1:08:30
SPEAKER_01: That example of Yamakin,
1:08:32
SPEAKER_01: if they took certain funds there,
1:08:34
SPEAKER_01: of course it would be easier to ensure that we have road safety training and we
1:08:38
SPEAKER_01: have compliance.
1:08:39
SPEAKER_01: But that is the essence of using of
1:08:42
SPEAKER_01: earmarking fund for health purposes.
1:08:44
SPEAKER_01: So when you increase taxes,
1:08:46
SPEAKER_01: I know there are people who look at it and say,
1:08:49
SPEAKER_01: so you've increased taxes for spirits from 300 and something to 572.
1:08:54
SPEAKER_01: So then what this means is that we should expect an increase in illicit trade.
1:08:58
SPEAKER_01: But no, illicit trade is a crime.
1:09:01
SPEAKER_01: Taxes should not be the ones that create it too.
1:09:03
SPEAKER_01: to criminal behavior.
1:09:04
SPEAKER_01: And then also,
1:09:06
SPEAKER_01: apart from working on the tax policy,
1:09:07
SPEAKER_01: then the government should invest properly in administrative tools that actually
1:09:12
SPEAKER_01: work to ensure that we've not just increased these taxes to reduce consumption of
1:09:17
SPEAKER_01: the product,
1:09:18
SPEAKER_01: but we are also eliminating illicit trade in these products so that
1:09:22
SPEAKER_01: the tax policy actually works.
1:09:24
SPEAKER_01: So tax policy of a country is only as strong as its administration.
1:09:30
SPEAKER_01: With that then, I do not see how the hate taxes would lead to the increase of the NCDs.
1:09:38
SPEAKER_01: So it's an issue of balancing the policy,
1:09:40
SPEAKER_01: the expenditure of the administration of these taxes,
1:09:44
SPEAKER_01: and then how these taxes are used by the government to take care of its people.
1:09:49
SPEAKER_02: Thank you for that.
1:09:50
SPEAKER_02: We are nearing the two-hour mark, so I think you should start winding up.
1:09:54
SPEAKER_02: I think a couple of questions, but definitely we'll organize another spaces on this.
1:09:59
SPEAKER_02: I'll give each of you maybe a couple of minutes to give us your closing thoughts.
1:10:03
SPEAKER_02: We can start with Ruth and then Karambu and then Ernest at the end.
1:10:06
SPEAKER_02: Ruth,
1:10:06
SPEAKER_02: maybe you can give us a few closing thoughts and perhaps some key takeaways that
1:10:10
SPEAKER_02: they might be interested to think about as they go through the provisions and make
1:10:14
SPEAKER_02: submissions to Parliament in this regard.
1:10:16
SPEAKER_00: All right, Karambu.
1:10:17
SPEAKER_00: First is to note that the government is really being very aggressive in terms of collecting tax.
1:10:24
SPEAKER_00: And my recommendation to all Kenyans,
1:10:28
SPEAKER_00: one,
1:10:28
SPEAKER_00: is to at least make sure that you have a basic understanding of the laws that
1:10:34
SPEAKER_00: relate to tax.
1:10:35
SPEAKER_00: What we are discussing today being proposals that some of them have a negative impact on
1:10:41
SPEAKER_00: that whatever already is in law,
1:10:43
SPEAKER_00: at least try and comply to avoid being in a situation where you do not have money
1:10:49
SPEAKER_00: and the government is on your case.
1:10:51
SPEAKER_00: But just to comment on the Finance Bill 2020,
1:10:54
SPEAKER_00: to say that my hope is that the government will consider the public views so that
1:11:01
SPEAKER_00: any taxes that are not necessary,
1:11:03
SPEAKER_00: the VAT,
1:11:04
SPEAKER_00: the proposed introduction of VAT on financial services,
1:11:07
SPEAKER_00: the motor vehicle tax,
1:11:08
SPEAKER_00: can be reviewed
1:11:10
SPEAKER_00: to a later time,
1:11:11
SPEAKER_00: at least to allow Kenyans to at least just what had been implemented in the past
1:11:17
SPEAKER_00: because it's too much happening and sometimes it's very difficult to keep track.
1:11:21
SPEAKER_00: I really hope the government will consider those proposals and listen to Kenyans so
1:11:27
SPEAKER_00: that Kenyans are not suffering when you are promising Kenyans that they should be enjoying.
1:11:33
SPEAKER_00: So thank you very much and I really look forward to the amendment and hopefully they will be positive.
1:11:38
SPEAKER_01: Then I want to ask the listener really as much as possible to participate in the public participation.
1:11:45
SPEAKER_01: I've seen it work in 13 years.
1:11:47
SPEAKER_01: I cannot speak for last year.
1:11:50
SPEAKER_01: But I've seen it work in many other times and even on other different laws.
1:11:54
SPEAKER_01: I have seen that public participation is a process that can actually work.
1:11:59
SPEAKER_01: I keep saying that the worst that could happen when you ask for something,
1:12:01
SPEAKER_01: The worst that can happen is to be told no.
1:12:04
SPEAKER_01: So kindly participate in this activity.
1:12:07
SPEAKER_01: And even as Ruth has said about trying to have some basic knowledge on tax,
1:12:11
SPEAKER_01: I think that's something that we should also inculcate in our children so that they
1:12:15
SPEAKER_01: do not get the shockers that we have gotten as adults for not understanding what
1:12:20
SPEAKER_01: goes on and then having to deal with taxes when we are adults.
1:12:24
SPEAKER_02: Thank you.
1:12:25
SPEAKER_02: Anis, any closing thoughts?
1:12:26
SPEAKER_02: So, at least now I know I need to get an air fryer, top using vegetable oil.
1:12:32
SPEAKER_02: In terms of public participation,
1:12:34
SPEAKER_02: just to add,
1:12:35
SPEAKER_02: one of the feedback we have gathered along the way is that members of public may
1:12:39
SPEAKER_02: not write their
1:12:44
SPEAKER_02: representations in a way that is very specific for it to be inserted into the taxation laws.
1:12:52
SPEAKER_02: In terms of writing your feedback,
1:12:55
SPEAKER_02: the most encouraged way is to write the specific wording that should be inserted in
1:13:00
SPEAKER_02: each specific section of the law so that then it makes it easier for those who are
1:13:04
SPEAKER_02: going through the issues raised to be able to incorporate it into the law.
1:13:09
SPEAKER_02: When people write in composition form,
1:13:12
SPEAKER_02: sometimes it becomes very difficult for them to craft an amendment to the specific
1:13:17
SPEAKER_02: tax law.
1:13:17
SPEAKER_02: And so you find public participation becomes negated by the type of drafting that has been adopted.
1:13:24
SPEAKER_02: And given the short timeline that the parliament has to review all that information,
1:13:30
SPEAKER_02: then it can easily be omitted.
1:13:32
SPEAKER_02: So that is my experience I have seen over the years of public participation.
1:13:36
SPEAKER_02: In terms of small-scale farmers,
1:13:38
SPEAKER_02: this bill does not touch on them,
1:13:41
SPEAKER_02: but the tax laws as they are designed will cover them.
1:13:45
SPEAKER_02: For example,
1:13:46
SPEAKER_02: any person whose income from business,
1:13:49
SPEAKER_02: including agriculture,
1:13:50
SPEAKER_02: is less than $1 million,
1:13:51
SPEAKER_02: that person is expressly exempt from any form of taxation.
1:13:55
SPEAKER_02: So if you're a farmer and your total income in that one year...
1:13:58
SPEAKER_02: and all other incomes that you have is less than $1 million, no taxation.
1:14:02
SPEAKER_02: So even if you get incorporated into eating,
1:14:05
SPEAKER_02: and at the end of the year,
1:14:06
SPEAKER_02: your total farming income was less than $1 million,
1:14:09
SPEAKER_02: you get exempt.
1:14:10
SPEAKER_02: The tax rate in terms of turnover tax for most business people whose turnover is
1:14:15
SPEAKER_02: less than $15 million is 1.5%,
1:14:17
SPEAKER_02: as was reduced by the Affordable Housing Act from 3%.
1:14:22
SPEAKER_02: So any farmer who is then captured under the income bracket of...
1:14:27
SPEAKER_02: $1 million to $25 million will pay 1.5% of the gross revenue taxation.
1:14:34
SPEAKER_02: So as a farmer,
1:14:35
SPEAKER_02: then probably you need to enlighten yourself on the tax requirements once you've
1:14:39
SPEAKER_02: been incorporated into e-teams to ensure that then you keep the appropriate tax rates.
1:14:44
SPEAKER_02: So it is hard to design a tax that excludes farmers because taxation systems have to be fair.
1:14:51
SPEAKER_02: And if you're a large farmer or a fairly large farmer, then you'd be caught up.
1:14:56
SPEAKER_02: if you're earning a lot of money.
1:14:58
SPEAKER_02: But for the tiny small-scale pharma, you'll be excluded by the existing tax law.
1:15:03
SPEAKER_02: In terms of the computation of time,
1:15:05
SPEAKER_02: trying to get my head around how this provision will work,
1:15:09
SPEAKER_02: does it amend the existing provisions?
1:15:11
SPEAKER_02: Does it supersede the existing provisions?
1:15:13
SPEAKER_02: in terms of competition of period and excluding Saturdays and weekends and public holidays.
1:15:19
SPEAKER_02: So I don't know if it's an indirect amendment of all the provisions.
1:15:22
SPEAKER_02: Still, the VAT Act would say returns should be submitted by the 20th.
1:15:25
SPEAKER_02: Does that mean VAT Act is amended to say returns should be submitted by the 20th
1:15:32
SPEAKER_02: working day of the month?
1:15:33
SPEAKER_02: I'm trying to understand how this will work going to the future.
1:15:37
SPEAKER_02: Thank you very much for this opportunity.
1:15:39
SPEAKER_02: Thank you.
1:15:40
SPEAKER_02: I could say Ernest has been on Citizen this past week trying to explain the finance bill in Swahili.
1:15:44
SPEAKER_02: So if you can catch all the links on, you can find a bit of a breakdown in Swahili.
1:15:49
SPEAKER_02: Thank you so much, Karambu, Ruth, Ernest, for helping us unpack the finance bill.
1:15:53
SPEAKER_02: I think we should have you again soon.
1:15:55
SPEAKER_02: Maybe next time we'll focus more on the questions that people are
1:15:58
SPEAKER_02: Please listen very carefully to what Anas has suggested.
1:16:00
SPEAKER_02: If you're trying to make a submission to Parliament, make it as simple as possible.
1:16:04
SPEAKER_02: Say,
1:16:05
SPEAKER_02: retain this instead of deleting it,
1:16:07
SPEAKER_02: and then make sure that you have a good and really small justification.
1:16:11
SPEAKER_02: If you search online the commented version of the Finance Bill 2023,
1:16:14
SPEAKER_02: you can see a few of the comments that Parliament received.
1:16:18
SPEAKER_02: So make it short, make it simple to understand, and make it really punchy.
1:16:22
SPEAKER_02: Remember, they don't have a lot of time.
1:16:23
SPEAKER_02: It's 13 days to comment.
1:16:25
SPEAKER_02: And then maybe after that, it goes to the second reading and stuff like that.
1:16:28
SPEAKER_02: So like we have very little time for that.
1:16:30
SPEAKER_02: But make sure to participate in the process timely.
1:16:32
SPEAKER_02: It's your duty as a citizen to be part of these processes so that even if you're
1:16:36
SPEAKER_02: not heard,
1:16:36
SPEAKER_02: at least you have,
1:16:37
SPEAKER_02: you can say that I wasn't heard or at least you made a particular submission.
1:16:40
SPEAKER_02: So if you have any questions, our DMs are always open below the pinned tweet.
1:16:44
SPEAKER_02: You can always ask our questions.
1:16:46
SPEAKER_02: I can see a couple of questions that are more general.
1:16:48
SPEAKER_02: I think we'll tackle them.
1:16:49
SPEAKER_02: Time goes by.
1:16:49
SPEAKER_02: We'll try and send them.
1:16:50
SPEAKER_02: Maybe I can give you a second or two each of you to say where the people can find
1:16:54
SPEAKER_02: you because I know you're a tax expert and you are in the profession.
1:16:57
SPEAKER_02: So you're also looking for people to help out in this regard.
1:17:00
SPEAKER_02: So maybe Ernest, Ruth and Karambu, you can quickly tell us where people can find you.
1:17:04
SPEAKER_02: Ernest, tell us where people can find you.
1:17:06
SPEAKER_02: My email is info at ernestandmartin.com.
1:17:09
SPEAKER_02: So any queries on that email will be responded to.
1:17:13
SPEAKER_01: Karambu?
1:17:14
SPEAKER_01: You can email me on karambu.mudhaura at gmail.com and I'll respond to your questions.
1:17:20
SPEAKER_02: Thank you.
1:17:22
SPEAKER_02: Ruth?
1:17:22
SPEAKER_00: All right.
1:17:23
SPEAKER_00: Probably on Twitter, Ruth Mwiti, number two, or my email is info at techservices.co.ke.
1:17:29
SPEAKER_00: Thank you.
1:17:32
SPEAKER_02: you so much for joining us the three of you people in the audiences very nice to
1:17:36
SPEAKER_02: have you here also thank you all for making time to be with us don't take it for
1:17:40
SPEAKER_02: granted that you took your time around two hours this evening to listen to us break
1:17:44
SPEAKER_02: down all this finance bill 2024 very good to see interest in some of these
1:17:49
SPEAKER_02: technical stuff are they important and they are very good to make a commentary on