Cost of living to surge on back of new tax measures

A raft of tax measures constituted in the Finance Bill, 2019, will pinch taxpayers hard as they get actualised, leading to a surge in the cost of living. Transport, manufacturing, trade, and digital marketing are some of the sectors targeted with intent to mine money through increased taxation. Consumer goods prices will more than double, with the increase in Import Declaration Fee levy and Railway Development Levy from two per cent to 3.5 per cent and 1.5 per cent to two per cent respectively the later as a result of import inflation. Already, the cost of a stick of cigarette has gone up by between Sh2 and Sh5. With the cost of electricity having surged significantly despite efforts to bring it down. A possible handicap has emerged in the development of solar and wind energy including batteries, which were previously exempt from VAT, but now require the Energy Cabinet secretary to approve any such exemptions. This is likely to affect ease of doing business, with a possible knock-on effect on the cost of renewable energy products. Kenyans wishing to buy new vehicles will fork out more, with a hike in the motor vehicle excise taxes which have been raised from 20 to 25 per cent for cars over 1500cc, while that for station wagons and race cars increase from 30 to 35 per cent. Local assemblers Though not a tax expert, Michael Mugasa, a partner with PWC Kenya said what immediately came to his mind was that although the taxes would raise the cost of living, they would help spur growth of local vehicle assemblers in order to create employment in the sector. “Let us look at it positively. The whole idea of raising the duties is to slow down importation of vehicles and boost local production and create jobs,” said Mugasa. According to PKF Kenya partner Michael Mburugu the impact of the tax increment will be borne by the consumer, a factor he terms unfortunate. The New Year also ushers in taxes for the digital economy market place, with platforms that enable interaction between buyers and sellers of goods and services through electronic means now liable for income tax and value-added tax (VAT). Late filing Businesses whose income does not exceed Sh5 million will pay three per cent on gross sales on or before the 20th of the following month. Late payment attracts a five per cent penalty on the tax due, whereas late filing attracts a Sh5,000 penalty per month. This, Mburugu said, was a good thing and would expand the tax base, considering that the turnover tax had not been increased since 2008, placing the burden of paying taxes on a few people. “What this turnover tax does is to introduce equity. Only 2.5 per cent of Kenyans pay taxes out of an estimated population of 48 million people,” he said. On the flip side, the Real Estate Investment Trusts (REIT’s), Green Bonds with a minimum of three years to maturity, the National Housing Development Fund, and people who register under the Government’s Ajira Digital (online work) programme from January 2020 to December 2022 will also be exempt from income tax. And in what can be interpreted as a desire by government to reduce urban pollution and dependence on oil, excise taxes for electric-powered motor vehicles have been reduced from 20 to 10 per cent. On the environmental front, plastic recycling companies will get a preferential corporate tax rate of 15 per cent for five years, while machinery and equipment used for plastic recycling plants will be VAT exempt.

Cost of living to surge on back of new tax measures

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Cost of living to surge on back of new tax measures

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