Tax experts slam gov't over new VAT proposals, want accountability for collected taxes

Besides the Motor Vehicle Circulation tax, which they claim will dent the country’s motor vehicle insurance penetration, the experts are also opposed to the proposal to introduce a 16 per cent VAT on financial services claiming that the move will return the country back to the era of “mattress banking”.

The tax experts also challenged the government to account for the already collected taxes that have been spent before burdening Kenyans with new taxes.

During a meeting that was convened in Nairobi to unpack the Finance Bill 2024, tax and financial experts called on the government to find a working balance in implementing its tax strategy.

“There is still the feeling that people are getting taxed more than they could bear, we had investors giving their comments around how much tax they have to bear and the uncertainties around the tax changes in the country, employers saying they are already contributing more for employees especially where they are matching contributions and that has an impact in terms of employment,” said Alex Kanyi.

Their issues of concern include the proposal to introduce a 16% VAT on Financial services; a move they say will have a detrimental impact on the country’s journey to attain financial inclusion.

“We are currently at 90% financial inclusion where people moved from mattresses and they went and banked their money but with the introduction of VAT to 16% and we have excise duty effectively it will mean that for financial transactions the tax will increase cumulatively to 39% and this will mean that people will reduce the number of transactions and move away from the normal channel and we will go back to being a cash economy,” he added.

According to the experts, the enhanced transparency, reduced corruption and increased efficiency in financial transactions are among the numerous benefits that the country has been ripping from being a cashless economy, advantages that may now say will be compromised.

“So they need to pick one they either maintain excise duty on its own and move away from VAT,” Kanyi noted. 

The Bill also proposes to introduce a Motor Vehicle Tax payable on each motor vehicle payable at the rate of 2.5% of the value of the motor vehicle. 

The amount of tax payable shall be subject to a minimum of Ksh.5,000 and a maximum of Ksh.100,000.

The insurer will be responsible for collecting and remitting motor vehicle tax within five working days after issuing a motor vehicle insurance cover. Failure to remit the tax would attract a penalty equivalent to 50% of the uncollected tax, as well as the actual amount of unpaid tax. 

The experts argue that vesting the responsibility of compliance on the insurer will hamper vehicle insurance penetration in the country. 

“You see it is the insurance company which is supposed to ensure compliance with the motor vehicle tax which will discourage people from doing the right thing by failing to insure their vehicle so now like the minute I go take my insurance cover I have to pay the motor vehicle tax,” stated Kanyi.

Despite the reservations, they have also pointed out proposals that bear positive outcomes. 

“When you look at the common mwananchi there are good perspectives that have come especially for the pay as you earn where somebody will get relief and also from the pension side where somebody is getting additional reliefs so that they have something to take care of them when they retire,” Kanyi stated.

“I think also a plus is for the Bill is the proposal to give Remission for spirits that have been manufactured from agricultural products will give a good alternative and help mitigate the issues we have had with illicit brew.”

President William Ruto had revealed plans to progressively increase Kenya’s general tax rate from 14 to 22 per cent before the end of his term emphasizing the importance of enhancing revenue generation and reducing foreign debt. 

“Raising taxes and increasing taxes should also be tied to services and people want to see what the government is doing with the taxes,” added Kanyi.

Members of the public and stakeholders have until Monday next week to submit written views on the Bill to the National Assembly.