Ordinary Kenyans hit hard by the budget

A woman shopping in a supermarket in Nairobi. Treasury CS Henry Rotich has hit ordinary Kenyans with higher excise taxes on mobile money transactions and kerosene as he looks to finance the country’s Sh3 trillion budget amid inadequate revenue collection. PHOTO | DENNIS ONSONGO | NATION MEDIA GROUP

What you need to know:

  • The surprise increase in the mobile levy will see Kenyans pay a 12 per cent excise duty on money transfer services, up from 10 per cent.
  • The government has also slapped a 0.05 per cent tax on Sh500,000 and above transferred through banks.
  • The CS has also raised excise duty on private cars with a higher engine capacity by 10 percentage points.

Treasury CS Henry Rotich has hit ordinary Kenyans with higher excise taxes on mobile money transactions and kerosene as he looks to finance the country’s Sh3 trillion budget amid inadequate revenue collection.

The surprise increase in the mobile levy will see Kenyans pay a 12 per cent excise duty on money transfer services, up from 10 per cent.

The government is likely to net billions in additional revenue from the higher mobile money tax due to the huge popularity of mobile money transactions — Kenyans transacted Sh3.7 trillion through their phones in the 12 months to March 2018 — but at the expense of ordinary Kenyans, who are already strained by the rising cost of living.

The government has also slapped a 0.05 per cent tax on Sh500,000 and above transferred through banks and other financial institutions, with Mr Rotich saying that these taxes will go towards financing the government’s universal healthcare plan.

ROBIN HOOD TAX

“In order for the government to get a fair share of revenue from these financial activities and to finance critical programmes, I propose to introduce a ‘Robin Hood Tax’ of 0.05 per cent on any amounts of Sh500,000 or more transferred through banks and other financial institutions,” Mr Rotich said yesterday in his budget speech.

“In addition, I have increased excise duty fees charged on money transfer services by cellular phone service providers from 10 per cent to 12 per cent. The revenue realized from these measures shall be used to fund Universal Health care.”

The excise duty on kerosene has been raised from Sh7.21 per litre to Sh10.31 to match that of diesel, with low-income households that use kerosene for lighting and cooking the most affected. Mr Rotich said the move is meant to curb the adulteration of motor vehicle fuel using kerosene by unscrupulous dealers.

Petroleum products will in September also start attracting 16 per cent VAT from September, promising additional pain for low-income households.

Increased transport costs invariably affect the cost of food, as transporters pass on these expenses to the consumer.

The Consumer Federation of Kenya (Cofek) immediately hit out at the higher excise duties on the basic items, saying they are targeting the poor at a time they are already struggling to service.

“The cost of living will go up, considering that the cost of kerosene and transport will rise. The rise in excise tax, especially on M-Pesa, can only mean a bleak future for the consumer,” said Cofek in a statement.

EXCISE DUTY

The CS has also raised excise duty on private cars with a higher engine capacity by 10 percentage points.

Under the current regulations, excise duty is charged uniformly on motor vehicles, irrespective of the engine rating.

Imported cars generally attract 25 per cent import duty, 20 per cent excise duty, and 16 per cent VAT, payable cumulatively and in that order.

Pick-up trucks, lorries, trailers and prime movers are exempt from excise tax.

“To ensure progressivity which is a cardinal principle of taxation, I propose to increase excise duty from 20 per cent to 30 per cent on private passenger motor vehicles whose engine capacity exceeds 2500cc for diesel, and 3000cc for petrol powered vehicles,” said Mr Rotich.

The excise tax increments are just the first of several tax changes that will hit Kenyan households hard.

VAT on basic items is set to go up in coming months through amendments to the Tax Laws (Amendment) Bill, 2018 that has reclassified a number of basic commodities from zero-rating for VAT to exempt status.

This will see the basic food items such as flour, bread and milk attract VAT, since manufacturers will pass on the cost to consumers.

Other items affected will include farm pest control products, liquefied petroleum gas and raw materials for pharmaceutical manufacturers.