What you need to know in a nutshell!
In 2023, Kenya was embroiled in a heated debate over a proposed Finance Bill, a crucial piece of legislation that sets out the country’s fiscal policies and revenue collection measures for the coming financial year. The bill generated significant controversy, sparking debates among policymakers, economists, and citizens alike. Some of the contentious taxation measures included higher income tax rates for certain income brackets, an increase in value-added tax (VAT), and additional levies on select goods and services.
Finance Bill timeline
June 22 – parliament votes to pass the Finance Bill 2023
June 26 – President Ruto assents to The Finance Bill 2023.
June 3oth – High Court suspends the implementation of the Bill after a successful petition by Activist and Senator Okiya Omtatah.
July 29th – A 3-bench of the Court of Appeal lifts the suspension of the Fiance Bill placed by high court in June pending the determination of an appeal filed by Prof Ndung’u.
Below are some key provisions of the Finance Bill 2023 and the potential implications for the economy and wananchi.
One of the central elements of the Finance Bill 2023 is taxation reforms. The bill proposes changes to the country’s tax structure, aiming to boost revenue collection and fund essential government programs. However, critics argue that the proposed tax increases could burden already struggling individuals and businesses, potentially stifling economic growth.
Proponents of these reforms claimed they were necessary to address budgetary deficits and bolster public services, but opponents countered that it could lead to reduced consumer spending and a decrease in business investments.
Key Provisions and Controversies Finance Bill 2023
Value Added Tax (VAT) Amendments: One of the most contentious provisions is the proposed expansion of VAT to essential goods and services. The bill aims to increase the VAT rate from 16% to 18%, affecting essential items such as food, medicine, and education. Critics argue that this would disproportionately impact low-income earners, exacerbating poverty and inequality in the country.
The government however argues that the move is necessary as there is a need to generate additional revenue to support critical public projects and reduce budget deficits.
Capital Gains Tax (CGT) Modifications: Another contentious proposal is the revision of capital gains tax rates. The bill proposes to raise the CGT rate on the sale of property and other assets from the existing 5% to 7.5%. Real estate developers and investors opposed this measure, fearing it would dampen investment in the property market and potentially lead to a decline in property prices.
Digital Services Tax (DST): In response to the growing digital economy, the Finance Bill 2023 seeks to widen the scope of the Digital Services Tax. The bill proposes taxing revenues generated by digital service providers such as e-commerce platforms, online streaming services, and social media companies. Critics argued that this move could stifle innovation and discourage foreign investment in Kenya’s burgeoning tech sector while creatives and content creators felt that the government was out to curtail self-employment in a niche they have worked so hard to find gainful income around.
Excise Duty Hike on Alcohol and Tobacco: To curb the consumption of alcohol and tobacco products, the government proposed a significant increase in excise duty rates. While public health advocates welcomed this move, the alcohol and tobacco industries warned of potential job losses and a rise in illicit trade if the prices of these products skyrocketed.
Tax Incentives and Exemptions: The Finance Bill 2023 also sought to revise the tax incentive system, making it more stringent to curb tax evasion and revenue leakages. Some economists praised this effort, emphasizing the need for a fairer tax system that ensures all businesses contribute their share. However, proponents of the status quo argued that such changes could deter foreign investment and hamper economic growth.