More belt-tightening as govt proposes new taxes
Kenyans are expected to dig deeper into their pockets as the state proposes a raft of new taxes in a bid to raise at least Sh650 billion a year from Kenyans.
The proposed taxes, according to Treasury’s Medium Term Revenue Strategy 2023–24–2026–27, include:
Harmonization of VAT Rates
Treasury has proposed to harmonise Kenya’s VAT rate to bring it in line with other East African Community (EAC) member states. Kenya currently maintains a VAT rate of 16%, while other EAC nations stand at 18%. In the document, Treasury proposes the review without specifying whether it will be upwards or downwards. It will be an uphill task for Kenya to harmonise the local tax rate with those of its neighbours without raising it from the current 16 per cent.
VAT on Educational Services
Another proposal introduces VAT on educational services that are “not directly related to education”. This tax could affect parents who enrol their children in schools that offer additional services like swimming pool access, uniform provision, transport, and related services. Consequently, this may lead to an increase in school fees.
VAT on Insurance Services
The government is also contemplating applying VAT to insurance services, potentially leading to higher premium costs for Kenyans seeking insurance coverage.
Enhanced Taxation of Farmers and SMEs
The government plans to provide Kenya Revenue Authority (KRA) with more detailed financial information from farmers and small and medium enterprises (SMEs). This information will enable KRA to tax them more effectively through associations and cooperatives. Additionally, customs data will be utilized to track micro-small enterprises (MSEs) involved in the importation of goods.
Tax on Farm Produce
The government intends to introduce a 5% tax on agricultural products, acknowledging that the agriculture sector, which accounts for 21.1% of GDP, is currently undertaxed.
Review of Housing Tax
To address compliance issues, treasury is proposing a review of housing tax, with a focus on taxing rental income at the corporate rate. Non-compliance with the existing 7.5% tax on rental income resulted in approximately Sh27 billion in uncollected revenue last year.
Reviews of Excise Duty
The government is considering reviewing excise duties on alcohol, cigarettes, and non-alcoholic beverages.
Vehicle Circulation Tax
An additional tax, known as the vehicle circulation tax, is being considered, which would be applicable to all vehicle owners. The road tax is part of the contingency tax measures that the government has retained as an additional revenue-raising measure in case the 2023 Finance Bill fails to deliver targeted taxes.
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