National Assembly Finance Committee Chairperson Kuria Kimani has clarified the proposed 16 per cent VAT on financial services.
During a meeting with the Kenya Bankers Association (KBA), the MP stated that the VAT would be imposed on charges imposed by financial institutions for various transactions.
He stated that the amendment was not targeting the total amount in transactions as had been perceived by the public and other stakeholders.
"Committee Chairperson Hon Kuria Kimani has however clarified that the provision on Clause 34(b)(i)does not intend to impose VAT on the value of the transaction rather than on fees charged on the transaction," read the statement by Parliment.
At the Tuesday meeting, banks expressed concern over introducing the VAT on financial services.
According to KBA, the tax was targeting telegraphic money transfers, foreign exchange transactions, issuance of credit and debit cards, and cheque handling among others.
The Association explained that the introduction of the tax would be consequential in the banking sector given that they would be forced to increase charges.
KBA added that the increase would ultimately limit most Kenyans from accessing formal financial services.
"The increased total taxation of financial services under the Bill would reach 40% from the current 15%, significantly hampering accessibility and affordability of banking services among low-income earners and small businesses," the association opined.
Additionally, they opined that the VAT, especially on foreign exchange transactions could affect imports and ultimately cause the prices of goods and commodities to shoot up.
The Finance committee is currently leading a public participation exercise allowing various stakeholders to air their views on the proposed Finance Bill 2014.
Various stakeholders have opposed tax proposals in the bill owing to their implications on business.
