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Parliament to seal fate of Kenyans over levy on fuel

James Momanyi @jamomanyi

A battle looms in Parliament when members of the National Assembly hold a special sitting to deliberate on the proposals of President Uhuru Kenyatta’s memorandum on the Finance Bill 2018.

Legislators will be walking a tightrope to either accommodate the President views and re-submit Bill to the President for assent or stick to their earlier plans.

For three weeks the spotlight has been on the unpopular 16 per cent value added tax (VAT) on petroleum products, which the President proposed to cut by 50 per cent, to eight per cent. The president also outlined austerity measures and expenditure cuts targeting non-priority expenditures across all arms of government.

In total, Treasury anticipated raising around Sh71 billion from VAT on fuel and other taxes that were scrapped by Parliament.

But besides the 16 per cent VAT, the legislators must also contend with a number of other tax measures introduced in the 2018/19 budgets estimates, but which the MPs had also amended in the Finance Bill 2018.

When he read the budget statement in June, Treasury Cabinet secretary Henry Rotich increased the excise duty on mobile money transfer charges from 10 per cent to 12 per cent. He also introduced a Robin Hood tax of 0.05 per cent of any amount of Sh500,000 or more transferred through banks or other financial institutions.

But MPs scrapped the charges on mobile transfers. They also scrapped the Robin Hood Tax, citing that the tax was punitive and the Sh500,000 threshold was too low.

According to Maurice Oduor, a Senior Investments Manager at leading investments company Cytonn, while the scrapping of the tax comes as a relief to the banking sector, it will create revenue shortfalls for the government, which may be forced to borrow in order to plug the deficit.

“Banks were of the view that the tax would have a negative impact on the flow of funds and curb investments. However, scrapping the tax would mean revenue shortfalls for government, increasing fiscal deficit. Government has to supplement the revenue shortfall through debt, which is likely to increase the country’s debt burden to 60 per cent by the end of the fiscal year 2018/19,” said Oduor.

“Rejection of the levy will deal a blow to the Affordable Housing pillar of the President’s Big Four agenda,” he said.

While MPs may not have objections to the proposed austerity measures by cutting spending on the less essential vote heads like hospitality, foreign and domestic travel, training and seminars, and similar categories, to release the funds to bridge the deficit, it will be a tough call for the legislators when considering the proposal to cut the Counties budget and the money allocated to various development funds, especially the National Government Constituency Development Fund (NGCDF).

The President’s memorandum has not been made public, but there are allegations that the President has proposed a Sh9 billion slash from Counties budget, Sh3.8 billion from the Equalisation Fund, Sh5 billion from Parliament budget. Further, it’s alleged that the President has also raided and carted away Sh6 billion from NGCDF and a further Sh8.7 billion from a fund set aside to repair roads affected by floods.

From the budget cuts Treasury is likely to realise about Sh33 billion. Last week the Treasury chief administrative secretary (CAS) Nelson Gaichuchie said while the reduction of VAT on petroleum products by half may be laudable, there is still the threat of shortfalls in revenue to be collected through taxation.

“The government will need to supplement these actions with more measures to generate revenue such as promoting the country’s export capacity, increasing efficiency in public corporations in order to generate sustainable profits, and increasing foreign direct investment, all while shielding citizens from high taxes,” Oduor advised.

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