The Finance Bill 2021 has proposed to remove the requirement for the Cabinet Secretary, National Treasury and Planning to table any VAT Regulations to Parliament for approval.
Experts point out that if this proposal is passed into law, then National Treasury will be able to come up with new tax measures and implement them without any oversight from the National Assembly.
Apart from Kenya, all other member states of the East African Community Countries have pegged VAT at 18%. Pressure is also mounting from the International Monetary Fund for Treasury to increase VAT so as to boost tax revenue collection.
According to an analysis by accounting firm KPMG, this proposal implies that new VAT Regulations will be implemented without any prior approval by the National Assembly.
“If this amendment in the Finance Bill is passed into law, this will raise a Constitutional concern as the National Treasury will be at liberty to implement new VAT legislation without going through the National Assembly for approval,” said Peter Kinuthia-Director & Head of Tax and Regulatory Services, KPMG Advisory Services.
At present, any tabling of regulations before the National Assembly is provided for under the Statutory Instruments Act (STA), which includes a procedure for parliamentary scrutiny of all statutory instruments.
The STA provides that the Cabinet Secretary shall, within seven (7) sitting days after the publication of a statutory instrument, ensure that a copy of the statutory document is transmitted to the responsible Clerk for tabling before Parliament.
The STA further provides that where a copy of a statutory instrument required to be laid before Parliament is not so laid, it shall cease to have effect immediately after the last day that it was supposed to be so laid.
“On this basis, the proposed deletion in the Finance Bill goes against the spirit of the Constitution as envisaged in the STA as it seeks to remove the Parliamentary oversight on Regulations,” said Kinuthia.
The Finance Bill, 2021 (the Bill) was introduced for first reading in the National Assembly on 5 May 2021.
This is consistent with the recent norm where Finance Bills are introduced for debate before reading the budget in June of each year.
The COVID-19 pandemic has impacted the Government’s ability to meet its expenditure requirements amid pressure for additional resources to service the current debt load.
“This informs the additional tax revenue mobilization measures contained in the Bill, to finance the ambitious KSh 3.6 Trillion 2021/22 budget,” said Kinuthia.
VAT on Bread
Another contentious proposal in the Finance Bill 2021 that is likely to elicit sharp public anger is to charge VAT on bread, an essential item on the table of many households.
“The proposed change of VAT rate, contained in the Finance Bill 2021, on the supply of bread from zero rate to VATable will increase the price of this product which is a staple food for the ordinary Kenyan. The proposal to subject ordinary bread to VAT is likely to face a lot of pushback due to reduced incomes arising from the containment measures introduced globally to fight the COVID-19 pandemic,” said Kinuthia.
The Bill also proposes to include more goods and services in the excise duty regime such as locally manufactured sugar confectionaries and white chocolates and re-introduce excise duty on betting at a rate of 20% of the amount wagered or staked.
“This could see punters pay billions of shillings in tax. The tax was initially introduced in the year 2019 but was removed in July last year through the Finance Act 2020 following lobbying by betting firms. If this proposal is passed, the current duty reprieve will indeed be short-lived,” said Kinuthia.
He added that the reintroduction of the excise duty at 20% could see a situation where key industry players exit the market, citing an unsustainable and unfavourable business environment.