The National Treasury will now be forced to look elsewhere to raise Sh8 billion to finance the 2020/21 budget. This is after the members of the National Assembly rejected the proposal to apply the 14 per cent tax on some commodities among other measures.
The move by the MPs is aimed at cushioning Kenyans even as it dealt a blow to the financing of the Sh2.79 trillion budget for the next financial year.
Already, the budget has a deficit of about Sh1.3 trillion to be financed largely through domestic and external borrowing.
FINANCE BILL
This comes as the MPs passed the Finance Bill, 2020, as recommended in the report of the Finance and National Planning Committee of the National Assembly.
However, it is not done yet as President Uhuru Kenyatta may decline to sign the Bill into law and send it back to the MPs via a memorandum for consideration on the specific areas.
The MPs also voted to zero-rate the supply of maize, wheat and cassava flours, in a move that will reduce the cost of these essential commodities especially at this difficult time of Covid-19 pandemic. Currently, only bread and milk are zero rated.
“These are basic essentials and as a House we should support this to cushion Kenyans,” Kitui Central MP Makali Mulu said as he rallied MPs in defeating the ‘excesses’ of the Treasury’s proposal.
The items which the National Treasury had targeted for 14 per cent tax include some helicopters and aeroplanes not exceeding 2,000 kg, tractors, other than road tractors for semi-trailers, aircraft pneumatic tires and goods for clean cooking stoves.
SH320 MILLION
The government will be required to spend at least Sh320 million during the next financial year after the MPs again blocked a proposal to have Liquefied Petroleum Gas (LPG) among other items, removed from the zero rated category.
Other than the LPG, the National Treasury also wanted materials for the manufacture of automotive and solar batteries.
Only maize (corn) seeds and ambulance services had been exempted from Value Added Tax. The MPs also voted down a proposal to tax benefits given to pensioners above 65 years.
MPs led by Suba North Millie Odhiambo said that it was illegal to tax pensioners as the benefits they get do not constitute earnings.
“Why follow those who are vulnerable? Why follow those who are struggling? It is better that the National Treasury looks for better ways of cushioning the economy than to follow pensioners,” Ms Odhiambo said.
Tinderet MP Julius Melly said: “Taxing pensioners is double taxation because they paid taxes during their time.”
VIOLATE THE LAW
Rarieda MP Otiende Amollo also faulted the National Treasury for attempting to violate the law.
“It is important that this dangerous trend is reversed. When you are engaged in certain terms, those terms cannot be arbitrarily changed to your disadvantage,” Mr Amollo said.
However, it was a blow for the alcohol sector manufacturers and consumers.
The MPs agreed with the National Assembly to widen the tax bracket of alcoholic beverages by reducing the threshold for alcohol strength in beer and spirits from the current over 10 per cent to a further 6 percent in a move that is projected to raise Sh1.5 billion in excise duty.
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Previously the Finance Bill that provides the revenue raising measures by the government in a year, was required to be passed 90 days after the reading of the budget and passage of the Appropriations Bill.
The Appropriations Bill, which gives the government the legal power to spend the sums as approved by the government, is due before June 30 every year.
However, the Finance Bill was tabled in the House on May 6, 2020.
This change was necessitated by constitutional interpretations issued by the courts in 2018, which barred the government from collecting taxes before the relevant tax provisions are approved by the National Assembly.
The essence of the court ruling was to give the National Assembly time to approve the Bill in time for implementation of the tax measures when the government calendar starts on July 1, effectively allowing the government to match revenue collection and expenditure for the year.
