economy
Eyes on Uhuru for new airtime, bank loan taxes
Wednesday June 30th 2021
President Uhuru Kenyatta signs the Division of Revenue Bill 2021 at the State House in Nairobi on April 30, 2021. PHOTO | power adapter
President Uhuru Kenyatta holds the key to enforcing new taxes that could make bank loans, internet access and cell phone calls more expensive tomorrow.
The President has the option to support or oppose the new taxes that MPs introduced into the government-sponsored finance bill after Parliament sent the bill to the State House for approval.
MPs increased the excise tax on airtime and data from 15 percent to 20 percent, which will bring the Treasury Department at least Sh8 billion from Safaricom #ticker: SCOM, Airtel and Telkom Kenya.
This proposal was not included in the finance law and it remains to be seen whether the president will support the airtime tax despite the tax not being included in the finance ministry’s plans.
The 2021-22 fiscal year budget is expected to cement the legacy of Mr Kenyatta’s 10-year tenure in a difficult economic environment marred by depressed corporate and household profits amid uncertainties arising from the Covid-19 pandemic.
Parliament opposed the Treasury Department’s proposal to change the way bread tax is calculated, which would have discouraged bakers from claiming refunds for raw materials such as electricity that incur VAT.
This would have spiked bread prices and put it out of reach for the majority of households grappling with the economic hardship of Covid-19.
But MPs backed the Treasury’s offer to reintroduce 16 percent sales tax on cooking gas and a 20 percent excise tax on fees and commissions earned on loans.
This means that from tomorrow, households will have to pay at least 350 Sh350 more for the 13 kilogram cooking gas, which further exacerbates the pain from expensive energy such as gasoline and electricity.
Excise tax on bank loan fees will result in banks paying the tax officer more than 7 billion shutters annually, which risks making loans costly to homes and businesses as lenders place the burden on borrowers.
Parliament’s approval followed the review of the Finance Act, which contains tax measures for the new budget year from July.
This now shifts the focus to President Kenyatta, whose final signature is required for amendments to the 2021 Finance Act to become final.
The Treasury Department is targeting approximately Sh2.04 trillion in total revenue compared to Sh1.83 trillion estimates for the current year ending this month, according to the Budget and Appropriations Committee’s report.
Ordinary revenue streams for the Treasury Department – consisting of taxes and non-tax streams such as court fines, government service fees, rent and collections – are expected to hit Sh1.78 trillion, or 87.10 percent of the projected revenue.
Safaricom warned Tuesday that if the president backs MPs’ proposal to increase excise tax by five percentage points, it would increase airtime and internet charges.
“Since this is a consumption tax, the burden unfortunately has to be borne by the customer,” said Peter Ndegwa, CEO of Safaricom.
“Our appeal to the government is to reconsider this tax hike in the current economic environment. Mobile services support the majority of people negatively impacted by the Covid-19 pandemic and rely on mobile services to work, study or earn a living from home. The increase will therefore only increase the negative effects on our employees. “
Excise duty
In 2018, the government increased the excise duty on cellular services from 10 to 15 percent.
This prompted Safaricom to increase the cost of calls by 30 cents per minute and SMS by 10 cents, while rival Zuku increased the cost of subscribers using the 10Mbps package from Sh3,500 to Sh3,999.
The legislature also rejected a plea from bankers to exclude fees and commissions from loans from the 20 percent excise tax.
The Kenya Bankers Association (KBA), a lenders lobby, had argued that imposing excise taxes on fees and commissions would increase borrowing costs and reduce access to credit while businesses and households looked for cash to keep themselves from the strikes Covid-19 pandemic.
“The committee rejected the proposal as it undermines the intended goal of reducing tax expenditure. This will also undermine the tax base, ”said the National Assembly’s Finance and National Planning Committee.
Parliament voted to cut the tax on gambling winnings from 20 percent to 7.5 percent, a boost for gamblers and a blow to the Treasury.
MPs also cut the Treasury Department’s proposal to reintroduce the excise tax on bets from 20 percent that the state published in late April through the Finance Act 2021. The Treasury had tried to reintroduce the 20 percent tax on wagers on the finance Bill 2021, as it eyed billions of shillings from gamblers annually.
The 20 percent tax on betting stakes was introduced in 2019, but Parliament abolished it last year through amendments to the 2020 Finance Act following lobbying by betting firms.
Players currently pay 20 percent on their winnings, but the parliamentary committee cut it to 7.5 percent because the current taxation on bets is too high and has deterred investors.