NAIROBI, Kenya, May 19 – Kenya’s pressure to increase tax revenue is expected to mount, even as the government attempts to finance the budget while keeping the debt burden in check.
This is according to Deloitte East Africa Tax and Legal Partner Lillian Kubebea who says pressure will also be caused due to a ballooning budget, coupled with a slowdown in economic activities.
Kubebea says it is not a surprise, therefore, that the Government is proposing to introduce Value Added Tax and Excise duty on some essential commodities such as bread and fees in respect of loans provided by financial institutions in Kenya.
She adds that while the move is arguably understandable from the perspective of minimising exemptions and growing the tax base, the timing of the introduction of any new taxes at a time when the country is facing the coronavirus pandemic is certainly questionable.
“One hopes that there will be more focus on measures to improve the business environment to spur greater economic growth in order to reap the fruits in form of increased tax collection,” Kubebea said.
Kubebea was commenting on the Finance Bill, 2021, which was published on 5 May 2021 and tabled in Parliament on 11 May 2021.
The Bill has proposed amendments to several statutes among them the income tax act, the value added tax act, 2013, the excise duty act, 2015 and the tax procedures ct, 2015 among others.
Under the Value Added Tax for instance, the bill proposes to delete the supply of ordinary bread from the zero-rating schedule, heance affecting cosumers and suppliers/ manufacturers of ordinary bread.
According to the global consultancy firm, the proposal to remove the supply of ordinary bread from the zero-rating schedule will imply that ordinary bread becomes taxable at the general rate. If passed, the cost of ordinary bread is likely to go up.
“Given that bread is a basic commodity, which is consumed by many households in Kenya, keeping it under the zero-rating schedule will be more beneficial to ensure it remains affordable to the local mwananchi,” the firm says in a tax alert document.
The Bill comes at a time when the country needs broader and stronger measures to help businesses stay afloat, support households, and preserve employment amid the raging COVID-19 pandemic.
Striking a balance between stimulating the economic growth and responding to challenges is not expected to be easy. The Government is expected to face immense pressure in mobilising enough revenue to fund the projected budget of Sh3.632 trillion.