Attention will from this week shift to companies, suppliers and various government agencies as they start implementing some of the tax proposals for the new financial year that starts on Monday.
Treasury Cabinet secretary Henry Rotich made a raft of proposals in his 2019/20 budget statement, some of which will take effect tomorrow, with others were staggered to October and January next year.
Mr Rotich directed all government ministries, departments and agencies to give exclusive preference in procurement of motor vehicles and motor cycles to firms that have assembly plants in Kenya from July 1. He said the move would spur growth of local auxiliary industries and enterprises and create employment opportunities for the youth.
Also beginning tomorrow, all procurement of office accommodation by government will be standardised with uniform cost leases and existing contracts will be renegotiated to ensure a standard rate. This has set up government agencies operating in rented properties on a collision path with landlords.
Mr Rotich told the Sunday Nation the government will also, in the coming days, develop modalities that will guide implementation of electronic travel cards for public servants. Implementation of this policy promises to end the gravy train and wasteful expenditure that has seen public servants mint huge allowances on domestic and foreign assignments.
Kenyans will have three more months to enjoy cheaper prices of their favourite wines and whiskeys after Treasury pushed the implementation date of new taxes on alcohol from July 1 to October 1.
“Modalities of implementation will be worked out. Commencement date of various tax measures are indicated in the (2019 Finance) Bill, which are largely when the bill is passed,” Rotich said in a text message.
The 2019 Finance Bill will see betting companies and those seeking to transfer property get less from their business activities in the coming days. This is after he proposed a 15 per cent increase in the rates of excise duty on cigarettes, wines and spirits in the 2019/20 financial year.
The increment will see prices of a 750ml bottle of wine increase by at least Sh18 since distributors and manufacturers will not pay an excise duty of Sh136, which is Sh18 more from the current rate.
Retailers always round up the prices of commodities and this means that the prices could even be more expensive.
Duty on a bottle of whisky will go up by Sh24 to Sh182 for a 750ml bottle. On its part, the excise duty on a packet of 20 cigarettes will increase by Sh8 to Sh61 per packet.
These proposals are generating heat in the alcohol industry, with players arguing they have been taking the biggest hit in new tax measures.
“The proposal to increase excise tax on wines and spirits by 15 per cent while retaining the annual inflation-adjusted tax escalation on all categories is not only detrimental to the industry’s growth but also a drawback on the multi-agency efforts to address illicit alcohol in Kenya,” Mr Gordon Mutugi, the head of Alcoholic Beverages Association of Kenya (ABAK), said in a statement.
On betting, gamblers will be required to pay a 10 per cent excise duty of the amount wagered or staked. The implementation of this policy will, however, wait until Parliament passes the Finance Bill and will be effective latest on January 1 in the event Parliament fails to pass the bill.
This means that gamblers will pay Sh10 for every Sh100 staked before the outcome of their betting. Should they win, they will pay another tax on the winnings but should they lose, then it is the betting company that will be required to submit the 10 per cent tax on the amount staked.
Other sectors to be affected in the new financial year include the digital economy that encompasses online and e-commerce firms. Taxing the digital economy has always been hard due to unparalleled reliance on intangibles.
Mr Rotich argues that massive use of data, widespread adoption of multi-sided business models and the difficulty of determining the jurisdiction in which value creation occurs are some of the challenges of bringing the sector under the tax net.
“This has led to erosion of our tax base, hence low tax revenue since the existing system is not equipped to deal with these emerging challenges,” he added.
Players in the security services, cleaning and fumigation services, catering services offered outside hotel premises, transportation of goods (excluding air transport services), sales promotion, and marketing and advertising services will also in the coming days start paying withholding taxes on their income.
This is after Treasury proposed to expand the scope of application of withholding tax by subjecting these entities, other than management and professional fees, to withholding taxes as one of the ways of enhancing tax compliance.
In his budget statement, Mr Rotich said the customs measures will be communicated through the EAC Gazette and will be effective from July 1.
The proposals that take effect Monday include those that affect the steel and timber industries. Those who import timber should start getting better prices from Monday. In a bid to deal with the shortage of timber following the banning of logging of trees, Mr Rotich slashed import duty on raw timber from 10 per cent to 0 per cent.
Those transferring property will in the coming months pay a capital gains tax at the rate of 12.5 per cent, up from 5 per cent.
The measures are expected to help Mr Rotich fund the Sh3 trillion budget. According to his revenue collecting initiatives, Treasury hopes to raise Sh468.4 billion from salaried employees in Pay As You Earn taxes. This is an increment of about Sh65.1 billion more, compared with Sh403.3 billion that the government hopes to get by the end of the current financial year.
Those who buy second-hand motor vehicles will help the national Treasury raise Sh224 billion while selling properties at a profit will raise the government Sh4.6 billion in taxes.