Even before Treasury Cabinet Secretary concluded his Budget speech, it was clear from the tax policies that Kenyans were caught off guard. Most expected very drastic tax actions especially on income tax and sin sector. But Henry Rotich chose to go for the very low-hanging but often unrecognised fruits that few would have anticipated. His thinking is simple.
Kenyans have lots of cash, and they move this money through two main ways: banks and mobile phones. So instead of increasing tax on your income, the government has decided to tap Kenyans’ revenues downstream at the stage of sharing or investing. Mobile money is a cashcow.
The two percentage points from 10 to 12 per cent may look tiny but the implication will be humongous. The value of mobile money transacted in the second quarter of 2017/18 financial period ending December 2018 stood at Sh1.7 trillion.
The whole year would be more than double that amount at Sh3.4 trillion. Two per cent of that amount would raise close to Sh700 million. Mobile transfer is a very active and fruitful point to tax as it will be more or less painless given that most mobile transactions are small amounts.
The dark side of it, of course, is the fact that service providers will pass the tax to consumers and so we are likely to see an increase in the cost of sending money. As Kenyans get more cash-flash, they are investing. And with insecurity associated with hard cash and limitations of mobile transactions, bank to bank transfers are by far the most used for bigger amounts.
Now a 0.05 per cent tax net has been placed at the Sh500,000 threshold. CBK date shows nearly Sh5 trillion was transacted through bank to bank transfers, mainly RTGS, by January 2018. Most of these are huge amounts that will fall in the tax category and thus raise substantial money for the government.
Diaspora remittances hit an all-time high of Sh197.12 billion ($1.95 billion) in the 12 months through December 2017. A huge chunk of these incomes are sent through banks and will be a key source of the revenue the government intends to raise. Indeed, what was spared at the income tax level for Kenyans has been taken away through money transfer levies.
But then the taxes are nearly unavoidable as these are essential services. In short, you cannot use your own budget to avoid or reduce these two taxes since the alternatives are very unattractive. Email: [email protected]