Proposed tax amendments are counterproductive

Wednesday, April 8th, 2020 00:00 |

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Mucai Kunyiha 

On 25th March, President Uhuru Kenyatta announced a raft of measures in response to the Covid-19 pandemic and directed the National Treasury to take steps to implement them as a matter of urgency. 

The measures were well received, with the only question being the extent to which they would mitigate the economic pain that is sure to come.

But the message was clear – steps need to be taken to cushion the private sector in the wake of what is now clearly going to be the biggest economic shock of the last 100 years.

As businesses try to make sense of the evolving situation, working to balance mitigation of job losses and keeping essential products in supply, the support they need from the government is swift execution of the  measures and continuous engagement on more measures to ensure longevity. 

Instead, the National Treasury on March 31 published a proposed Tax Amendment Bill that does the exact opposite.

It has been noted that Covid-19 is especially cruel to those with pre-existing conditions. This applies to individuals as well as governments and societies.

This means that in the absence of proper social and economic structures, the impact by the pandemic on some countries will be more severe and they will take longer to recover.

As an Association, we have always stated that Kenya has progressive economic policies.

The problem has been their execution or lack thereof. The translation of the President’s policy into the Tax Amendment Bill has significantly undone any optimism in the business community.

The Bill proposes to increase taxes as opposed to effecting measures to cushion businesses. 

It seems to suggest that the priority for this country is, over and above all else, tax collection. 

While it purports to implement the changes proposed by the President, it introduces other measures that significantly reverse the relief offered.

While countries around the world are cutting taxes to mitigate the Corona crisis, this Bill says that Kenya is going in the opposite direction.

No matter how explicable these amendments, the timing could not be worse. The raft of proposed changes is long  but I will highlight a few that demonstrate their impracticality at the height of a global crisis.

Firstly, the Bill proposes to reverse many benefits and incentives granted across sectors in the last few years, some as recent as 2019.

For instance, the allowable tax expenses for listing on the Securities Exchange, VAT on property transactions for REITS, income tax exemptions for pension payments to persons over 65 years of age, and tax deductions for electricity costs granted to manufacturers. Very few tax incentives seem to have been deemed fit to survive this Bill.

In the midst of the biggest health crisis in the world, the Bill proposes to increase the cost of pharmaceutical manufacturing by moving medicines from zero-rated to VAT exempt, a move that has been shown to increase the cost of products.

In the face of the challenge that we face as a country and humanity, and the stated intentions of the government, the Tax Amendment Bill 2020 is counterproductive.

It chips away at the collective spirit to trudge on, despite the difficult circumstances. It diverts our efforts when we really should all be focusing on trying to see our country through the pandemic.

We urge Parliament to reject any changes beyond the President’s proposed tax relief measures.

Our focus should be on getting businesses through this difficult period and also on building a strong post-Covid-19 recovery plan for our country. — The writer is the vice chairman of Kenya Association of Manufacturers  [email protected]

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