Rotich catches up with the real ‘hustlers’ in new tax measures

Sinister · 2019-06-14T04:55:10+00:00

Security guards, drivers and cleaners are among the lowest-income earners that will help National Treasury Cabinet Secretary Henry Rotich raise Sh1.8 trillion in new tax measures. Their employers, often contractors of bigger firms, will, beginning July 1, be subject to huge withholding taxes that is usually levied at 15 per cent. Others drawn into the tax base are promotional sales agents and catering staff offering services outside of their eateries. While it does not necessarily suggest pay cuts, it now means that the typically minimum-wage workers are contributing to the national kitty, albeit indirectly. In any respect, Rotich had managed, for the first, to expand the tax base significantly, as desired by President Uhuru Kenyatta, after past attempts yielded too little in additional revenues. “… these services include security services, cleaning and fumigation services, catering services offered outside hotel premises, transportation of goods, excluding air transport services, sales promotion and marketing and advertising services,” Rotich said. He told legislators the purpose of the proposals was to expand the scope of application of withholding tax in a measure that would “enhance tax compliance by persons offering these services.” Gamers will also pay 10 per cent of the amount they want to bet up front in excise duty, irrespective of the outcome of their prediction – win or lose. Placing a bet worth Sh100 would mean the amount staked is only Sh90 as the Sh10 is handed over to the Kenya Revenue Authority (KRA). These are among the new taxation measures introduced in the budget, which also outlined additional levies for drinkers and smokers in sin tax. Rotich raised the excise duty on beer, spirits and cigarette packets by 15 per cent, translating to an additional of between Sh18 and Sh24 for the taxman. “To address this decline and to boost excise revenues, I propose to increase the rates of excise duty on cigarettes, wines and spirit by 15 per cent,” he said in an increment that will be an addition to the annual price review that adjusts for inflation. Due to coinage and knock-on effects of the increased excise duty, however, the impact on the eventual retail prices would be more pronounced. Rotich did not spare the wealthier in his taxation proposals, in a move that was widely anticipated, by raising the tax on profits realised from sale of assets by two-and-half time to 12.5 per cent. A trader who buys shares for Sh1 million and sells them for Sh1.1 million, for instance, will pay Sh12,500 in Capital Gains Tax (CGT) and keep Sh87,500 as profit. Previously, such a trader would pocket Sh95,000 in profits while paying only Sh5,000 in CGT. From the new taxation proposals alone, that are, however, subject to approval by the National Assembly, the CS projects to realise Sh35 billion. Rotich’s stiff taxation measures come on the backdrop of a huge budget deficit of Sh607 billion, that would mostly be financed through borrowing. Experts had predicted narrowing scope for borrowing would force the CS to increase the Value Added Tax, from the current 16 per cent to match the region’s 18 per cent. He, however, seemed to find favour in proposing tough austerity measures, including freezing nonessential employment, immediate retirement of public officers who attain the age of 60 and the standardisation of rental prices for all buildings rented by the State. Beginning next month, Rotich said, all Government institutions renting space would only pay rent at a predetermined rate to curb exploitation of loopholes by unscrupulous landlords, colluding with officials to overcharge the State. His confidence of renegotiating the rental prices could be informed by the glut in the commercial and office space in major towns, where individual tenants are getting discounts of up to half the initial rates. Tens of concessions were granted, especially intended to promote local manufacturing, in the budget speech that was aligned to respond to President Uhuru Kenyatta’s recent demands. Local car assemblers are among the biggest winners following the directive to slash the excise duty to 10 per cent with an additional benefit that guarantees them a market in ministries and Government departments. “With effect from July 1, 2019, all Government ministries, departments, agencies and other public entities are required to give exclusive preference in procurement of motor vehicles and motor cycles from firms that have assembly plants in Kenya,” Rotich said. He said the proposal would enhance growth of local auxiliary industries and enterprises and create employment for the youth. Manufactures also scored another major win through sharp reductions in the withholding Value Added tax, from six to two per cent, which should translate to free cash flow. Boda bodas and three-wheeler taxis (tuk tuk) have also been directed to get third-party insurance covers to enhance safety of passengers and the general public. Insurance, however, does not apply as a form of taxation for the industry that employs more than 500,000, mostly youth. Philip Muema, a tax expert, said insurance costs could actually be passed on to commuters using the low-capacity vessels. Rotich has also zero-rated raw timber imports in a double-edged sword that will discourage logging at home on the one hand, and a 25 per cent duty on imported finished wooden products – as a means to spur local carpentry work.

Thread starter Sinister
Start date Jun 14, 2019

Sinister

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Rotich catches up with the real ‘hustlers’ in new tax measures

Sinister

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