• Millions of boda boda users will be forced to dig deeper in their pockets to afford the popular means of transport.
• Drinkers, gamblers and smokers will pay more too.
Smokers, gamblers, wine and whiskey lovers will pay more for their pleasures to fund government operations.
National Treasury CS Henry Rotich yesterday announced higher 'sin taxes' among wide-ranging measures to shore up KRA collections and finance the Sh3.02 budget for 2019-20.
Boda boda and tuk-tuk operations who have hitherto operated without insurance will have to take the third party covers, a move that will push up transport costs in the most common modes of transport in Kenya.
Addressing Parliament, Rotich proposed a 10 per cent excise duty on total winnings resulting from betting. This means a winner of Sh10,000 from any gaming activity will have to give Sh1,000 to KRA.
Rotich said betting has become widespread and has negative social and economic impacts, particularly on young and vulnerable people who want to get rich quick.
"In order to curtail the negative effects arising from betting activities, I propose to introduce excise duty on betting activities at the rate of 10 per cent of the amount staked," Rotich said.
Millions of boda boda users will also be forced to dig deeper into their pockets to afford the popular means of transport as riders pass on the proposed additional insurance costs to their passengers.
Rotich has proposed a bill requiring third-party insurance in the boda boda transport sector, which has proven to be risky to the riders, passengers and pedestrians.
“The accident victims mostly from the lower cadres of society, are left to seek financial assistance for treatment from friends and relatives since these boda bodas are not insured,” the CS said.
Also targeted in the revenue-raising measures are smokers and drinkers who will have to pay Sh8 more per packet of cigarettes, Sh24 more for 750ml wine and Sh18 more for 750ml of liquor.
A 750ml bottle of wine will now attract excise duty of Sh136, while duty on the same volume of whiskey will rise to Sh182. The excise duty on a packet of 20 cigarettes will increase to Sh61 per packet.
Selling a business will become more expensive after Rotich proposed to more than double the Capital Gains Tax from five per cent to 12.5 per cent.
"In order to allow for a seamless restructuring of corporate entities, I propose to exempt from the Capital Gains Tax the transfer of property that is necessitated by a restructuring of corporate entities," Rotich said.
He said this exemption will allow corporate entities to restructure for efficiency and better market penetration.
Rotich also hinted at the possibility of introducing a withholding tax on mobile resources including security, cleaning, outside catering, transportation of goods excluding air transport services, sales promotion and advertising.
This is expected to either lower revenue or increase costs for businesses in those segments, a move that will likely see the costs go up or reduce opportunities for beneficial businesses.
For instance, the introduction of withholding tax for advertisers will likely shrink business for media outlets.
"In order to address these challenges, I propose to reduce the rate of VAT withholding from six per cent to two per cent,’’ he said.
He added that this will not only help reduce the build-up of VAT refunds but will also help enhance the cash flow of our business community and stimulate economic activities and job creation.
Manufacturers are, however, the biggest winners in the proposed tax measures.
Rotich announced the 30 per cent tax reduction on electricity for manufacturers to result in a 20 per cent reduction in the cost of electricity beginning July 1.
“The Ministry of Energy in conjunction with the Ministry of Industry has developed the framework so manufacturers can enjoy this incentive,” he said.
The budget has a soft spot for environment-friendly firms. Firms dealing in plastic recycling will, for instance, be exempted from VAT.
Local firms engaged in the making of mother bodies for computer devices have also been exempted from paying VAT.
He also announced a reduction of withholding tax from the current six per cent to two per cent in addition to the creation of a team to settle tax refunds on VAT to be cleared within the next two months.
“The large accumulation of VAT refunds at KRA arising from VAT on zero-rated supplies has impacted negatively on the cash flow and liquidity of our manufacturers and the business community at large,” Rotich said.
This is expected to reduce the cost of doing business, especially for foreign companies setting up in the country.
Proposed tax measures are not, however, cast on stone. The Treasury has lined up a series of bills to be tabled in Parliament that will see more taxes imposed to help KRA meet its targets.
This year, the government was forced to come up with stringent tax measures to raise funds to support the budget.
Treasury introduced an eight per cent Value Added Tax on petroleum products, a 1.5 per cent levy for the National Housing Development Fund and a kerosene adulteration tax.
It also imposed a tax of Sh20 per kilogramme of sugar confectionery, including white chocolate, and it increased excise tax on cash transfers from 12 per cent to 20 per cent, and on calls and data from 10 to 15 per cent.
Suppliers, especially under the Access to Government Procurement Opportunities programme for women, youth and persons with disability are expected to benefit from a proposed payment of Sh10.9 billion to be paid within the next two weeks.
Both national and county government owe suppliers more than Sh300 billion, a move that Central Bank of Kenya said contributed to one per cent of total non-performing loans.
The tax policy measures are expected to generate an additional Sh37 billion in tax revenue to the Exchequer as KRA seek to address its perennial missing of tax targets. Treasury demands Sh1.8 trillion in the financial year starting July 1.
Generally, Treasury is expected to collect total revenue including Appropriation in Aid A-I-A) to fund a total expenditure and net lending of Sh2.8 trillion, resulting in a deficit of Sh607.8 billion.
The government is expected to borrow Sh324 billion externally and Sh283.5 billion locally to bridge the budget deficit. It is Sh45 billion higher than the deficit for the current year, which was Sh562 billion.
Key winners in the budget include the Education and Security sectors that together been allocated almost a third of government expenditure.
Education, as usual, took the lion's share — Sh473.3 billion, compared to Sh439 billion this year.
It prioritised recruitment of additional teachers to support 100 per cent transition to secondary school and continued support to Free Primary Education and Free Day Secondary Education through increased capitation.
Other priorities include support to Special Needs Education and providing examination fees for all students sitting the KCPE and KCSE tests.
The security docket has been allocated Sh326.5 billion, with Sh140 billion going to National Security and Sh121.6 billion to defence.
Other sectors expected to take a huge chunk of the budget include Energy, Infrastructure and ICT. They have been allocated a combined budget of Sh406.7 billion, up from Sh403.5 billion this year.
Public Administration and International Relations is expected to take Sh270.9 billion, compared to Sh223.7 billion this year.