National Treasury suffered a major blow after Parliament shot down a proposal that would have seen financial institutions impose a 0.05 per cent tax on transactions above Sh500,000.
Members of the National Assembly voted to throw away the excise duty tax-popularly known as the Robin Hood, as proposed by National Treasury Cabinet Treasury’s Henry Rotich in the Finance Bill, 2018.
Robin Hood tax was part of the revenue-raising measures Treasury put forward to fund the ambitious 2018/19 budget estimates tabled on June 14.
The MPs were of the opinion that allowing Treasury to tax 0.05 per cent on bank transfers of above Sh500,000 would give leeway for the government to impose tax on salaries remitted to employees.
The legislators who fought off the propsed legislation were led by Chris Wamalwa (Kiminini) and John Kiarie (Dagoreti South).“If this proposal goes through, you will be opening the Pandora’s box because tomorrow, they will tax the salaries sent to your employees at the Constituency level,” Wamalwa said.
The MP further claimed that the proposed tax would affect transfer of bursaries extended to students by the Constituency Development Fund.
“If passed, it will open a Pandora ’s Box and tomorrow they will start taxing the salaries you send to the CDF employees,” he said.
While presenting his Budget this year, Rotich said for the government to get a fair share of revenue from these financial activities and to finance critical government programmes he intended to introduce a “Robin Hood” Tax of 0.05 per cent of any amount of Sh500,000 or more transferred through banks or other financial institutions.
Rotich also moved to introduce an Exercise duty on fees charged for transfer services by banks, money transfer agencies and other financial service providers at one per cent of the excisable value.
The changes in taxes, Rotich said was intended to raise funds to finance the universal healthcare, which is part of President Uhuru Kenyatta Big Four agenda. At the same time Parliament rejected a bid to enact a law to increase capital base of banks from Sh1 billion to Sh5 billion.
Kiambu Town MP Jude Jomo had moved an amendment to the Banking Act seeking to increase the core capital of at least Sh5 billion by December 31, 2021, in the case of a bank or a mortgage finance company.
He had proposed that the increment be made gradually starting next year by Sh1 billion, a further Sh1.5 billion to make it Sh 3.5 billion in the year 2020 and finally another Sh1.5 billion to hit the Sh5 billion mark in the year 2021.
Jomo who successfully moved the interest rate capping law two years ago, said the intent of his amendment was to safeguard depositors as many banks were collapsing due to lack of capital.
But opposing the amendment, MPs said Jomo was seeking to favour the big banks who could afford the huge amount.
Chris Wamalwa accused Jomo of working for the big players in the banking industry by increasing the capital base. But Richard Tongi while supporting the amendment said banks have gone under because they were founded under very weak capital base.
“We need to address this issue otherwise we will continue to watch banks which are founded in weak financial base collapse,”he said.
Yatta MP Charles Kilonzo said the proposed law was in essence making the big banks a cartel since small players who will not be able to match the requirement will be closed.
Joseph Nduati(Gatanga) while opposing the amendment said that Equity Bank and Finance Bank started as small and medium enterprise (SMES) only to rise to become big players in the banking industry.“By passing this amendment we will be killing other upcoming institutions in the process resulting to mass unemployment.
Treasury says a strong and stable financial sector is critical for the growth of the economy and attainment of the Kenya’s long-term development plan.