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Law Society of Kenya warns over draft tax changes

Tuesday, April 14th, 2020 00:00 |
Inspector General of Police Hilary Mutyambai with deputy IG Communications Charles Owino (left) and Kenya Security Industry Association chairman Erick Okeyo (right) receive water tanks donated to the police by private security firms to help in the fight against coronavirus. Photo/PD/CHARLES MATHAI

The tax amendments contained in the Tax Laws (Amendment) Bill 2020, will make lives of Kenyans even harder in this turbulent time and lead to a sharp increase in the price of basic commodities, The law society of Kenya has said. 

The National Assembly is expected to convene today to debate on the Bill, which contains the tax proposals made by President Uhuru Kenyatta.

The proposals were aimed at cushioning Kenyans against the economic effects of the coronavirus pandemic.

The lawyers’ body has now warned that it will challenge the Bill in court if it is passed in its current form.

“In our role as a public guardian in respect of administration of justice and promoting rule of law in Kenya, we shall not hesitate to challenge this Bill before a constitutional court if it is passed in its current form,” reads the statement, which is copied to Clerk of the National Assembly, Michael Sialai and Treasury CS Ikur Yattani.

According to the society, there will be an increase in the price of basic commodities such as LPG gas and bread, and sectors such as pharmaceuticals, agriculture and tourism, the backbone of the economy, will be adversely affected. 

“There will also be consequent impact on retirement benefit savings and foreign direct investment into Kenya,” reads a letter by the society President Nelson Havi.

The society explains that the need to apply tax measures fairly is set out in Article 201 of the Constitution, which requires the public finance system shall promote an equitable society, and in particular, the burden of taxation shall be shared fairly.

Additionally, the failure to follow due process in enacting these far reaching tax changes goes against Article 47 of the Constitution which guarantees the right to administrative action that is expeditious, efficient, lawful, reasonable and proceduraly fair.

“The true implication of proposals in the Bill will be the complete opposite of what the President had offered in his address, to the detriment of the public as a whole,” Havi writes.

The, Bill the society says does not pass the constitutional threshold set out in the Constitution of Kenya.

“While we appreciate the need for urgency in passing the Covid-19 related tax measures, it is a cause for concern why the entire overhaul of the taxation regime in Kenya needs to be accelerated as these measures have nothing to do with Covid-19,” the society notes.

“We advise that only those measures that are in direct response to Covid-19 should be considered by Parliament. The constitutional threshold for public participation must be adhered to,” the society further states.

In his address, the President acknowledged that it was necessary for the Government to make targeted state interventions to mitigate shocks arising from the impact of the pandemic and to empower the public as well as the private sector to work together to support the Kenyan economy during these tough times.

The tax measures announced by the President, included, exemption of income earned by workers earning an income of Sh 24,000 or less from PAYE, Reduction of the top PAYE rate from 30 percent to 25 percent for individuals, The reduction of the corporation tax rate from 30 percent to 25 percent for corporate taxpayers.

The reduction of the turnover tax rate from 3 percent to 1 percent for low income earners.

The reduction of the VAT rate from 16 percent to 14 percent and the immediate release of VAT refunds of approximately Sh 10 billion within three weeks or to allow the outstanding VAT refunds to be offset against VAT withheld by appointed withholding VAT Agents.

According to the society, the measures relating to VAT refunds have not been clarified. It was expected that there would be clear guidelines with clear timelines on the issue of VAT refunds included in the Bill.

However,  far reaching amendments have been proposed in the Bill which will see basic essentials like bread and LPG gas which are currently VAT exempt vatable at 14 per cent as proposed under the bill. 

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