Eyes on Uhuru for new airtime and bank loan taxes

Economy

Eyes on Uhuru for new airtime and bank loan taxes


President Uhuru Kenyatta signs the 2021 Income Division Bill at State House, Nairobi, April 30, 2021. PHOTO | PSCU

President Uhuru Kenyatta holds the key to enforcing new taxes that could make bank loans, internet access and phone calls more expensive from tomorrow.

The president has the option of supporting or rejecting the new taxes that MPs introduced in the government-backed finance bill after Parliament passes the bill to the State House for approval.

MPs have raised excise duties on airtime and data from 15 to 20 percent, which will allow Treasury to raise at least 8 billion shillings from Safaricom #ticker: SCOM, Airtel and Telkom Kenya .

This proposal was not in the budget bill and it remains to be seen whether the president will support the airtime tax despite the levy absent from Treasury plans.

Fiscal year 2021-22 budget is expected to cement the legacy of Mr. Kenyatta’s 10-year tenure in a tough economy clouded by depressed corporate and household profits amid uncertainties stemming from the Covid-19 pandemic .

Parliament rejected the Treasury’s proposal to change the way the tax on bread is calculated in a change that would have prevented bakers from claiming reimbursement for raw materials such as electricity that attract VAT.

This could have led to an increase in the prices of bread and put it out of the reach of a majority of households struggling with the economic difficulties of Covid-19.

But MPs backed the Treasury’s offer to reintroduce 16 percent VAT on cooking gas and a 20 percent excise tax on fees and commissions charged on loans.

This means that households will pay from tomorrow at least 350 shillings more for the 13 kilograms of cooking gas, adding to the pain of expensive energies such as gasoline and electricity.

The excise tax on bank loan fees will see banks paying the tax authorities more than 7 billion shillings per year, potentially making credit expensive for households and businesses as lenders shift the burden to borrowers.

Parliament’s approval follows its review of the finance bill, which contains fiscal measures for the new fiscal year starting in July.

This now shifts the focus to President Kenyatta, whose final signature is needed to give legal force to the amendments to the 2021 finance bill.

The Treasury is targeting around 2.04 trillion shillings in total revenue compared to an estimate of 1.83 trillion shillings for the current year ending this month, according to the budget and credits committee report.

Ordinary Treasury revenue streams – including taxes and non-tax flows such as court fines, user fees for government services, rents, and confiscations – are expected to reach 1.78 trillion shillings, or 87.10 trillion. percent of income projections.

Safaricom on Tuesday warned it would increase airtime and internet charges if the president backs MPs’ proposal to increase excise duties by five percentage points.

“As this is a consumption tax, unfortunately the burden has to be absorbed by customers,” said Peter Ndegwa, CEO of Safaricom.

“Our plea with the government is to rethink this tax increase given the current economic environment. Mobile services have come to support a majority of people who have been negatively affected by the Covid-19 pandemic by relying on mobile services to work from home, learn or earn a living. The increase will therefore only intensify the negative impact on our people. “

Excise duty

In 2018, the government increased excise duties on mobile phone services from 10% to 15%.

This prompted Safaricom to increase the cost of calls by 30 cents per minute and SMS by 10 cents while its rival, Zuku, increased the costs for subscribers using the 10 Mbps plan at Sh 3,999 from Sh 3,500.

Lawmakers also rejected bankers’ call to exclude fees and commissions charged on loans from the 20% excise tax.

The Kenya Bankers Association (KBA), a lobby for lenders, had argued that imposing excise taxes on fees and commissions would increase the cost of borrowing and hamper access to credit at a time when businesses and households were looking for money to recover from the blows of the Covid-19 pandemic.

“The committee rejected the proposal because it would nullify the objective of reducing tax expenditures. It will also erode the tax base, ”said the National Assembly’s finance and national planning committee.

Parliament agreed to cut the 20 percent tax on gambling winnings to 7.5 percent, a boost to gamers and a blow to the treasury.

The deputies also lowered the Treasury’s proposal to reintroduce the excise tax on betting to 7.5% against 20% that the State had published at the end of April through the 2021 budget bill. The Treasury had sought to reintroduce the 20% tax on betting through the Department of Finance Bill 2021, when it ogled billions of shillings from punters each year.

The 20% betting tax was introduced in 2019, but Parliament removed it last year through amendments to the 2020 finance law following lobbying by betting companies.

Bettors currently pay 20% on their winnings, but the parliamentary committee reduced it to 7.5%, saying the current betting tax regime is too high and has put investors off.


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