Finance Act, 2023 opened a floodgate of other taxes aimed at collecting the last coin in the pockets of Kenyans.
The government is not done yet imposing new taxes despite the uproar that greeted the Finance Act, 2023 which imposed additional taxation measures on already heavily taxed Kenyans.
The National Treasury’s medium-term revenue strategy for fiscal years 2024/25 and 2026/27 has suggested the following new levies in an effort to broaden the tax base:
1. Increase in VAT
In Kenya, the current standard Value Added Tax (VAT) rate is 16%. However, this is about to be increased to 18%.
The revenue plan proposes to review the VAT rate and align it with that of other EAC member states which are at 18 per cent to ensure the tax framework is consistent; this, if implemented, means an increase in the cost of all manufactured goods including consumer goods.
2. VAT exemptions
The revenue plan further proposes the removal of VAT exemptions and zero rating of goods, as well as reintroduction of a minimum tax regime to deter companies and other entities from tax evasion through under-declaring.
3. VAT on services provided by the institutions
The government has proposed the introduction of VAT on services provided by the institutions that are not directly linked to education; this could include swimming and other non-educational activities.
4. Personal reliefs
Salaried employees’ payslips are set to shrink further as the Treasury seeks to eliminate reliefs on pay-as-you-earn (PAYE) taxes is adopted.
The government is seeking to eliminate personal reliefs that arise from, among others, insurance and medical.
5. Vehicle Excise Tax
Motor vehicle owners will also be punished for owning a car, besides numerous taxes they pay including fuel levy, insurance cover, and road levy.
The new tax plan seeks to introduce an annual motor vehicle circulation tax that will be paid during the acquisition of insurance cover; the vehicle’s engine capacity will determine the tax amount payable.
6. Carbon tax
The government is considering implementing a Carbon tax based on the carbon content of fossil fuels as a means of bolstering efforts to combat climate change.
The Treasury suggested a rise in the excise duty on fossil fuel-powered vehicles, tractors, and machinery over time.
The hike will be implemented gradually over time as we reevaluate our tax incentives for green energy and the elimination of existing taxes on electric vehicles.
Excise duty on petroleum products will be reviewed while the same will be introduced for coal.
7. 5% withholding tax on agricultural produce
Agricultural products will be subject to a final withholding tax, as suggested by the government.
Produce delivered to cooperatives or other organised groups will be subject to a fee of no more than 5% of the value of the goods delivered.
8. Insurer’s VAT
Insurance services are now exempt from VAT.
The National Treasury said increasing VAT income as a share of GDP will necessitate broadening the tax base to include insurance services taxed at the general rate.
Apart from from the taxes proposed by the National Treasury, there are other taxes that are being proposed by other entities.
9. Mandatory welfare levy
The Ministry of Labour seeks to compel Kenyans working abroad to pay a mandatory welfare levy.
According to the Labour Ministry, the mandatory welfare levy paid by Kenyans working in the diaspora will be deposited in the state welfare scheme.
The scheme, known as the Kenya Migrant Workers Welfare Fund, seeks to provide relief assistance to migrant workers, including invalidity benefits, medical assistance, and survivor benefits where a migrant worker dies.
Every migrant worker will be required to register as a member of the fund before departing the country for foreign employment. Contingency fees paid by private employment agencies will also be channeled to the fund.
The rate of contribution by each migrant worker is to be set under regulations to be published later.
10. Unemployment Insurance Fund
Salaried Kenyans face new monthly deductions after the Unemployment Insurance Bill 2022 tabled to the parliamentary budget office by Ikolomani MP Bernard Shinali.
The Bill seeks to make employers and employees contribute monthly contributions to the kitty.
According to the Ikolomani MP, the Bill the employer and employee will be deducted 1 per cent each.
“The objective of the proposal is to provide for the payment of unemployment benefits to employees who become unemployed or their beneficiaries by proposing to establish the Unemployment Insurance Fund to which both the employer and employee will contribute,” the Bill reads in part.
Shinali indicates that this will help out-of-work employees be able to navigate tough socio-economic times.
The new Unemployment Insurance Fund is an extra burden to the Kenyan employees given that their payslips are already shrinking.
When President William Ruto came to power he increased National Social Security Fund (NSSF) contribution from Ksh200 to Ksh2,000.
Employees were forced to increase their contribution to six per cent of their earnings, with the employer matching the same.
Ruto publicly declared that the amount should be increased to enable Kenyan employees to save up a reasonable amount.
Ruto further raided employees payslips as he introduced a mandatory housing levy at 1.5 per cent of gross salaries to finance his pet project.
The Affordable Housing Levy is a mandatory contribution by all employees payable monthly at the rate of 1.5% of the employee’s gross monthly salary and is to be matched by the employer at the same rate with no capping.
All salaried Kenyans who are within KRA’s radar now part with 1.5 percent of their gross pay towards the Housing Development Fund.
Ruto claims he will build 250,000 housing units every year from the money collected under the Housing Levy.