Following the release of the Finance Bill 2024 by the National Treasury, a raft of new taxes to the tax Acts have raised eyebrows in key sectors across the country with questions lingering over the implications of the new bill on the Small and Medium Sized Enterprises (SMEs).
So far, several associations have taken issue with clauses within the Finance Bill 2024, urging Parliament to reconsider the amendments for a better business environment.
Kenyans.co.ke takes a look at several clauses that associations seek to amend before the bill is signed into law and takes effect on July 1, 2024.
Clause: 25 per cent Excise Duty on Vegetable Oil
What It's About: The Finance Bill proposes a 25 per cent excise duty on edible oils including products such as sunflower, cottonseed oil and palm. This clause applies to both refined and unrefined products.
Implications: A statement by the Edible Oil Manufacturers Association of Kenya revealed the implications of this clause, with the businessman arguing that it would hike cooking oil prices by 80 per cent.
This is brought about by the taxation on both the finished products and raw materials. This means that bread (which uses cooking oil during the baking process) would rise by Ksh10 while margarine is likely to increase to Ksh300 from Ksh160. Other products set to be affected include soap, chapatis, and chips among others.
"If implemented, this excise duty will trigger an unprecedented surge in the price of cooking oil, a staple in Kenyan households," read part of the statement.
Clause: Scrapping of VAT Exemptions for Banking Transactions.
What It's About: The bill proposes a 16 per cent imposition on several financial services that were previously exempted from taxation.
These services include issuing credit cards and debit cards, telegraphic money transfer services, foreign exchange transactions such as the supply of foreign drafts and international money orders, check handling, processing, clearing and settlement, including special clearance or cancellation of cheques.
Other services include the issuance of securities for money, the provision of financial services on behalf of another on a commission basis, actuarial services as well as management and insurance consultancy services.
Implications: The Kenya Bankers Association argued that changing the rate from exempt to a standard rate of 16 per cent would hike the cost of banking to customers, affecting low-income individuals.
According to KBA chairman John Gachora, the proposed tax would make the country less competitive as the majority of the foreign exchange transactions would be offshored.
Clause: Eliminate VAT Exemptions Proposed in the Aviation Sector
What It's About: The aviation sector will also be affected as the bill proposes to eliminate VAT exemptions for services such as hiring or leasing aircraft, and use of aircraft appliances among others.
Implications: A statement by the Kenya Association of Air Operators (KAAO) argued that the proposed tax would hike costs for airlines and operators and in turn lead to higher charges for air travel.
This, according to the association, would impede the sector's growth in maintaining and developing the country's air transport system as well as affect tourism and trade.
Clause: 2.5 per cent Motor Vehicle Circulation Tax
What it's About: One of the big talking points in the Finance Bill 2024 has been the proposed introduction of the motor vehicle circulation tax. In the clause, motor vehicles will be taxed 2.5 per cent of the car's value when acquiring an insurance cover.
Implications: The Association of Kenya Insurers (AKI) urged lawmakers to reject the clause, arguing that it would force a mass migration to third-party insurance which covers damage to someone else's vehicle or property in the case of an accident. This insurance does not cover repairs to their vehicle.
The insurers predicted that motorists would incur higher risks as their vehicles would be unprotected in the event of accidents.
Clause: Monthly Penalties for Failure to Integrate With eTIMS
What It's About: The Finance Bill proposes a Ksh2 million monthly penalty for non-compliance with the Electronic Tax Invoice Management System (eTIMS).
Implications: The Kenya National Chamber of Commerce and Industry (KNCCI) argued that the penalty would lead to multiple job losses in the MSME sector, which represents over 80 per cent of employed Kenyans.
According to KNCCI president Eric Rutto, such businesses ought to be granted adequate time to be appraised of the eTIMS system before the penalty is enforced.
He noted that the government should invest in capacity-building and sensitisation programs to accommodate all businesses.
