Treasury to lose Ksh.128B in revenue following Covid-19 tax relief measures

The National Treasury will miss out on most of the Ksh.127.8 billion in intended savings from the 2020, Tax Laws (Ammendments) Bill after Parliament’s rejection of part of its supplements. The exchequer ministry had hoped to review the existing tax incentive to offset losses arising from the reduction of tax rates in line with the presidential directives to cushion Kenyans which were announced first in March. “The exemptions that are not achieving their intended purposes and are significantly eroding the tax base and should be removed,” Treasury Cabinet Secretary Ukur Yatani had told the National Assembly Finance and National Planning Committee earlier this month. However, CS Yatani would get the cold shoulder from MPs on Wednesday night as they voted in unison to reject proposals to lift the majority of the exemptions arguing the removal of the incentives would wipe out the intended cushioning to Kenyans. Additional supplements to the tax laws ammendments had sought to move items such as milk and medicaments from zero rates into exempt territory blocking producers from recovering input value added tax (VAT). Other ammendments had sort to move agricultural pest control products and liquefied petroleum gas (LPG) from zero rated to the vatable category while introducing VAT to national parks and reserves entry fees. In inserting the new supplements, Treasury had hoped to offset Ksh.44.2 billion in revenue losses from the reduction of tax rates in accordance to the Presidential directive which is expected to result in loss of annual tax revenue in excess of Ksh.172 billion. “In order to retain a revenue neutral position after the reduction of the rates, it was therefore necessary to review the tax expenditures provided,” added CS Yatani. According to Treasury’s tax expenditure analysis, the government forgoes six percent of Gross Domestic Product (GDP) every year through various tax incentives afforded to companies with the loss tabulated at Ksh.535 billion in 2018 alone. On Saturday, President Uhuru assented to the tax laws ammendments agreeing with MPs to retain the majority of exemptions on crucial consumer items. The Treasury has however had its way on the removal of some incentives including the now chargeable VAT on insurance and brokerage services. The squashing of the bid to lift exemptions comes as the Treasury faces an uphill task of raise in excess of Ksh.700 billion in revenues to the end of the fiscal year in June.

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