FINANCE BILL 2021

Treasury seeks powers to raise VAT without MPs' approval

Law currently requires that any VAT regulations are tabled in Parliament before implementation

In Summary

• Should the new proposal be adopted, it will give the Treasury unfettered freedom to increase or lower VAT as it wishes. 

• Tax experts have raised a red flag on this proposal, terming it aggressive

Treasury CS Ukur Yatani outside Parliament Buildings on June 11, 2020.
BUDGET: Treasury CS Ukur Yatani outside Parliament Buildings on June 11, 2020.
Image: FREDERICK OMONDI

The government is seeking powers to institute and implement new taxes without the approval of the National Assembly beginning next month.

The proposal is contained in the Finance Bill, 2021.

It seeks to scrap a regulation requiring the National Treasury Cabinet secretary to table any VAT regulations to the National Assembly for approval before implementation.

Should the new proposal be adopted, it will give the Treasury unfettered freedom to increase or lower VAT as it wishes. 

The tabling of regulations before the National Assembly as provided for under the Statutory Instruments Act provides for a procedure for parliamentary scrutiny of the statutory instruments before they are implemented.

''The Cabinet Secretary shall within seven sitting days after the publication of a statutory instrument ensure that a copy of the statutory document is transmitted to the responsible Clerk for tabling before Parliament," the STA reads.

Tax experts have raised concerns about the new proposal, describing it as aggressive.

"The proposed deletion goes against the spirit of the Constitution as envisaged in the STA as it seeks to remove the parliamentary oversight on regulations," KPMG said in its analysis.

Independent tax consultant Jerry Muluka said the proposal gives the National Treasury a free hand to increase the cost of living.

"VAT is the primary switch that regulates inflation. A small increase in VAT automatically subjects households to tougher living conditions as businesses pass the bill to consumers," Muluka said. 

He, however, noted that it is the easiest way for the government to generate revenue which it badly needs. 

The proposal comes at a time the government is keen on increasing domestic revenue mobilisation to fund the budget and cut on borrowing as advised by the International Monetary Fund.

If passed into law, the National Treasury will likely make changes on VAT charged on petroleum products, pushing it from the current eight per cent to 16 per cent as proposed by IMF. 

These are some of the demands placed by the international lender for the Sh255 billion advanced to Kenya in April to help the country continue responding to the Covid-19 pandemic and address its debt vulnerabilities.

President Uhuru Kenyatta was in 2018 forced to halve VAT on fuel to eight per cent after the introduction of the full tax prompted protests from motorists and business lobbies.

The tax was originally included in a law passed in 2013, but its implementation was postponed several times by Parliament, amid complaints about its impact.

National Treasury CS Ukur Yatani is expected to unveil an ambitious Sh3.66 trillion budget on Thursday for the 2021-22 financial year, with the Kenya Revenue Authority expected to collect almost Sh1.8 trillion. 

The planned budget is Sh0.6 trillion more compared to Sh2.8 trillion planned for the current financial year.

The revenue agency has been missing tax targets for the past five years, forcing the exchequer to borrow to fill the budget deficit. 

Kenya is already battling with a rising public debt, which currently stands at Sh7.3 trillion. Another Sh1 trillion is expected to be borrowed in the financial year starting July 1.