ECONOMY

Treasury defends tax measures set in the Finance Bill 2020

Says the measures are geared at unlocking more revenue streams as the economy dips due to the Covid-19 pandemic.

In Summary
  • According to Treasury, Kenya’s current tax expenditure of 6 per cent of the GDP places Kenya at among the highest tax expenditures in the world and this limits the government’s capacity to fund critical expenditures.
  • Treasury rationalizing the tax expenditures ensures that tax exemptions that were not achieving the intended purposes and eroding the tax base are removed.
National Treasury Cabinet Secretary Ukur Yatani
National Treasury Cabinet Secretary Ukur Yatani

The government has denied claims that Finance Bill 2020 will increase the cost of living.

National Treasury CabinetSecretary Ukur Yatani said the Bill shields VAT taxation against unprocessed agricultural produce and essential products such as bread, maize flour, milk, sanitary towels as well as seeds in order to support farmers enhance agricultural production.

He said the price of the essential goods will therefore not rise contrary to interpretations.

Instead, Yatani said the tax measures are geared at unlocking more revenue streams as the economy dips due to the Covid-19 pandemic.

“We have noted that the intention of some of the proposed tax measures in the Finance Bill, 2020 has been misunderstood, taking into consideration the current environment against which the measures were proposed,” said Yattani in a statement.

According to Treasury,  Kenya’s current tax expenditure at 6 per cent of the GDP places it among the highest tax expenditures in the world limiting the government’s capacity to fund critical expenditures.

 

The Bill, it says therefore, plans to minimise some unnecessary tax expenditure in the Income Tax Act, Value Added Tax Act, Excise Duty Act, and Miscellaneous Fees and Levies Act.

Yatani said the tax expenditures in most of the tax laws indicate that it benefits businesses and investors in very few sectors of the economy which are never passed through to the consumer and mwananchi through reduced prices.

This, he said, results in an unfair distribution of the tax burden due to tax incentives enjoyed by a few taxpayers.

The CS said rationalising the tax expenditures ensures that tax exemptions that were not achieving the intended purposes and eroding the tax base are removed.

According to the Treasury, zero-rating of VAT is restricted to exports to conform with the international best practice, as well as diplomatic and privileged institutions to comply with the Vienna Convention.

 

The amendment to Income Tax Act to raise the upper ceiling of monthly rental income that is subject to the 10 per cent monthly rental income rate to Sh15 million per year from Sh10 million per year was set to lower the rental tax burden to landlords that earn more than Ksh 10 million annually.

He said amendments to introduce a minimum tax to align the Income Tax Act with the international best practice was to bring on board companies who earn income from Kenya but end up declaring losses perpetually to avoid payment of corporate taxes.

The Bill proposes to cushion farmers from the high cost of maize seeds for sowing by exempting the corn maize seeds from VAT.

“This will support food production in the country especially maize which is a staple food during this period of Covid-19,” Yatani said.

The Bill also proposed to exempt ambulance services from to cushion Kenyans from the high cost of seeking medical services.a