Concerns Raised by Economists Over Tax Changes Impact on Economic Recovery – The East Observer

Summary:

• Financial analysts caution that Kenya’s Finance Bill 2024, with its proposed tax changes, might impede economic recovery if enacted without revisions. The bill introduces new taxes and amendments aimed at boosting revenue collection.

Financial analysts are cautioning that the Kenya Finance Bill 2024, presented to the National Assembly this week, may impede economic recovery if enacted without revising several tax proposals. The bill introduces various taxes such as Motor-Vehicle Tax, Minimum Top-Up Tax, and Significant Economic Presence tax, along with amendments aimed at bolstering revenue collection and tax adherence.

Economists highlight that amidst global shocks like geopolitical tensions in Europe and the Middle East and domestic challenges such as high public debt, achieving the financial target of Ksh3.9 trillion ($29.77 billion) for the 2024/25 fiscal year could become increasingly challenging.

Billow Kerrow, a former senator for Mandera, emphasized the inadvisability of imposing taxes during economic downturns. He stressed the importance of fostering economic growth and incentivizing business and production to generate revenue and employment.

The proposed changes include subjecting previously zero-rated items to VAT at the standard rate of 16 percent. This adjustment would affect products like bread, with an expected price hike of at least Ksh10 ($0.076), as well as electric bikes, buses, and certain batteries.

The Finance Bill 2024’s reversal of incentives introduced in 2023 to promote green energy use in the e-mobility sector has raised concerns. Diana Gichengo, Executive Director at the Institute for Social Accountability, lamented the potential adverse impacts on farmers, digital market businesses, and online vehicle owners.

Additionally, the bill aims to impose a 15 percent excise duty on fees for internet and social media advertisements related to alcoholic beverages, betting, gaming, lotteries, and prize competitions. It also proposes raising excise duty on money transfer services from 15 percent to 20 percent.

Critics argue that the bill’s proposed changes, such as introducing withholding tax on management or professional fees and excluding certain products from excise duty, could burden taxpayers and hinder compliance, particularly for those making numerous small payments.

In summary, while the Kenya Finance Bill 2024 aims to enhance revenue collection, economists caution that its implementation without careful consideration of its potential impacts could hamper economic recovery efforts.

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