Blow to Yatani as MPs shoot down punitive tax plan on unga, beer, boda bodas
Treasury CS Ukur Yatani will have to think harder on how to raise revenue for the next fiscal year after MPs shot down proposal to levy VAT on maize and wheat flour (unga) along with higher excise tax rates on imported motorcycles, and alcohol.
“The proposal to increase excise duty on alcohol may encourage uptake of illicit alcohol. The government may not, therefore, achieve the intended purpose of the tax which is to discourage drinking, and will therefore not realize the expected revenue,” the House team noted.
Further, the MPs observed that the move to raise excise duty on betting will push gamblers to start betting in offshore companies and thereby throttle the Treasury’s plan to generate projected revenues.
Up next on the chopping board by the legislators was Mr Yatani’s proposal in Finance Bill 2022 to slap excise duty on locally manufactured glass, noting that the new charge would turn into an undue advantage to imported glass products while killing Kenyan-based firms against the spirit of the Big Four Agenda.
While faulting the proposal demanding that firms engulfed in a tax row with the taxman deposit 50 percent of the amount in dispute with the Kenya Revenue Authority before lodging an appeal, the MPs said this would erode the working capital of many companies.
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While presenting the Kes3.3 trillion 2022/21 fiscal year spending plan, Mr Yatani proposed new excise duty, Kes134 per liter up from Kes121.85 or a 10 percent rise, on beer, cider, and spirituous beverages of alcoholic drinks not exceeding six percent.
For wines, the Treasury was proposing a higher tax of Kes229 per liter up from Kes208.20 currently a cost that will ultimately be shouldered by the final consumer.
The new excise duty of spirits and spirituous beverages of alcoholic strength above six percent will be hit with a 20.3 percent jump in tax to Kes335.30 per liter up from the current Kes278.70.
Further changes to Finance Bill 2022 by the Finance and National Planning Committee have seen the rate of excise duty charged on bet wagers at 7.5 percent even as VAT on cooking gas goes down to 8 percent from 16 percent.
At the same time, the Committee has backed the review of excise duty for inflation every two years instead of the current annual adjustment.
The deal on review of excise tax comes as a huge relief to manufacturers of excisable goods in Kenya who have since 2020 been countering in vain the government’s push to adjust upwards taxes in sync with the rising rate of increase in the cost of living.
The inflation adjustment is a key fiscal policy tool used by the government since 2018 to cushion its spending power from being eroded by the rise in the cost of living.