More pain for Kenyans as Treasury proposes tax increase

Amid the gloom brought about by pay cuts and job losses as a result of the Covid-19 pandemic, Kenyans could soon pay more in rent and household items, including food and cooking gas, as the government moves to impose new taxes to boost its revenues.

Also targeted for taxation is pension earned by senior citizens. A raft of proposals in the 2020 Finance Bill could wipe out the little gains brought about by the 2020 Taxation Laws (Amendment) Act, with the government appearing to be reneging on its promise to cushion Kenyans from the adverse effects of Covid-19 and the attendant tough economic conditions.

The Taxation Laws (Amendment) Act was enacted to cushion Kenyans from the effects of the coronavirus pandemic, and as it continues to cause economic havoc, Kenyans have been pleading with landlords to either freeze or give discounts on rent.

Indeed, some landlords have extended discounts on rent to their tenants. But these pleas now stand on weak footing as the Treasury is proposing to amend Section 6A of the Income Tax Act to increase the residential income tax rate from 10 per cent to 15 per cent.

In its analysis of the proposed bill, which was tabled in the National Assembly on Thursday, audit firm KPMG says the increase in tax rates will put pressure on landlords, who will be forced to pass on the tax burden to tenants through increased rents.

“The proposed tax will make it more difficult for landlords to accede to these requests, especially given that under the Tax Laws (Amendment) Act, 2020 other taxpayers were awarded tax reductions,” KPMG says.

CLEAN ENERGY

In what will certainly also hit Kenyans hard, the Treasury has proposed a VAT charge on liquefied petroleum gas (LPG) of 14 per cent.

Previously, LPG was exempted from taxation. With more households, especially in urban areas, using it for cooking, the new charge will substantially raise the cost of feeding millions of Kenyans.

The proposed VAT also goes counter to the government’s campaign for more Kenyans to adopt LPG for cooking instead of wood fuel.

Also, the 14 per cent VAT is higher than the eight per cent charged on other petroleum products.

The proposed taxes will raise the cost of basic commodities such as maize and wheat flour, milk, eggs and other food items.

The government is looking to increase its tax revenues to repay the huge public debt while also financing President Uhuru Kenyatta’s legacy projects, the Big Four, consisting of affordable housing, manufacturing, food security and universal health coverage.

The Budget Policy Statement published by the Treasury in February, under the theme of "Harnessing the Big Four for Job Creation and Economic Prosperity", shows that the government plans to spend Sh2.7 trillion this financial year, against revenue projections of Sh2.1 trillion, which leaves it with a deficit of Sh571.2 billion.

LOWER PENSIONS

The revenue projections have since suffered a serious hit as a result of the Covid-19 pandemic, which has seen the government implement public health measures to restrict movement.

As a result, employers have either laid off staff or implemented radical pay cuts so as to remain afloat.

The Treasury has also targeted retirees aged 65 and above as well as workers who make monthly contributions to the National Social Security Fund (NSSF).

Previously, the monthly or lump sum pension earned by persons aged 65 and above were exempt from taxation.

“Should the proposal pass, retirees, many of whom fall within the category of vulnerable members of society, will receive lower pensions, reducing their disposable income,” notes KPMG.

Like the proposal to tax income earned by NSSF, the proposal to tax pensions of the elderly had been rejected by MPs when they passed the 2020 Tax Laws (Amendment) Bill (now an Act of Parliament).

HOUSING

MPs had argued that imposing these taxes would significantly reduce the amounts payable to the retirees.

Also, the government seems to be countering its own affordable housing programme by proposing to subject the income of the home ownership savings plan to taxation.

The affordable housing programme is one of the pillars of President Kenyatta’s Big Four agenda. According to the State Department of Housing, the Boma Yangu portal for voluntary contributions towards home ownership has over 20,000 members who have so far contributed Sh230 million.

An estimated 300,000 Kenyans have registered on the portal. However, should the proposal to tax income of such home ownership savings plan be passed by Parliament, the contributors will need more time to save enough to buy a house, a fact that could discourage more people from joining or carrying on with their monthly contributions.