June 6, 2024

The government through Budget Policy Statement 2024/25 intends to collect taxes amounting to KES 3.354 trillion, made up of ordinary revenues of KES 2.913 trillion and appropriations-in- aid of KES 441 billion. It is evident that the citizens are likely to bear the burden that will see them struggle due to the increased cost of living, an increase in the transactions and operational costs and even a decline in their disposable income. Reflecting on the Finance Act 2023, it is clear that most citizens are still trying to adjust to the realities of the implemented act. Implementing the Financial Act 2024 will further aggravate their already worsening condition. For instance, with the new finance bill, some essential commodities such as bread and transportation will rise. This is detrimental to the well-being of the already struggling citizens. The Fiscal changes imposed by the current administration have seen most citizens grappling with the high cost of living. We deem that the Treasury would have determined the impact of the previous measures before introducing new ones. For instance, the 

1.5% affordable housing levy, considered the most contested and challenged clause in the latest Financial Act, will reduce the workers’ disposable income, affecting their net income. Despite projections that the total government expenditure on housing will increase by ten times to sh.92.5 billion in 2023/24, the increase will still see the people struggling as there is no clear directive on how the houses will be allocated. 

 Another reason for opposing the financial bill as it is its possibility to increase the transaction costs on services such as MPESA and even Banking. With the Finance Bill Act of 2024, it is clear that these crucial services are bound to become more expensive. Raising the current excise duty on mobile transfers and bank transactions from 15% to 20% will make it more costly for Kenyans who rely heavily on these services. As per the current situation, most Kenyans complain that the current charges are already high, and they greatly anticipate a reduction in the costs, apart from looking for other alternatives. It is also clear that the implementation of this clause will see most Kenyans shy away from mobile transaction in an effort to save the much-needed shilling. 

Furthermore, with the introduction of the new punitive taxes, experts have raised the alarm that with the new levies, there is an excellent possibility that the number of tax evaders will increase, affecting the amount of tax collected by the KRA. Increased revenue is significant for financing crucial financial services like infrastructure and other critical social programmes. Still, with the new punitive taxes, the country is likely to realise an increase in the number of evaders who will develop new ways to see the black market thrive. For instance, with the Finance Bill 2024 proposing taxes on crucial mobile services, businesses opt for other payment systems as they now prefer their customers to either withdraw the money or pay hard cash. There is a widespread complaint that the tax compliance burden has risen with the statutory contributions rising, making it relatively impossible for businesses to comply with the set conditions. This will make the black market thrive, which is unsuitable for the economy. 

 Furthermore, with the new finance bill proposal, Bankers and Financial Inclusion Advocates such as the Kenya Bankers Association have affirmed that the latest changes will put more strain on the consumers. This is mainly because of the Value Added Tax on the various banking services. The new bill recommends VAT on the various transactions ranging from foreign exchanges, money orders, credit card issuance, and cheque processing, which were previously exempt from the bills. With this, the customers will have to pay 39.2% of the various fees charged by the banks as tax if the recommendations are passed to law. This will see most customers shying off from these systems as it is costly to pay Excise duty at 20% and VAT at 16%; this will result in tax loss as most of them will opt to transact on forums that are not globally recognised within the financial ecosystem. Thus, it would be advisable for the Treasury to reconsider its recommendations, uphold the current status of exempting crucial financial services from Value Added Tax, and help sustain the prevailing 15% Excise Duty. The nation for a very long time has been recognised as a competitive financial hub in the region, and making the banking services expensive compared to its competitors in the area will see investors shying off since the nation will become uncompetitive as the rise in basic banking costs and the cost of credit will see most people engage in the black market which affects the revenue collected by Kenya Revenue Authority. 

 Again, with the new Finance Bill 2024, small and medium businesses will not be spared. This is because they will experience extra charges associated with the compulsory integration with the Electronic Tax Invoice Management System (ETIMS). The ETIMS is a good platform for smaller enterprises to streamline their various operations, cash flow management, and overall market competitiveness. It is essential that the government, in association with KRA, work collectively to ensure that the various businesses can transition smoothly to ensure that the smaller companies do not bear the heavy financial burden that comes with this change of bringing the smaller businesses under the tax net that requires them to record their sales. Notably, with queries by the various players to either amend or do away with the proposal that the multiple invoices generated through ETIMS should be recognised for tax purposes before its approval, it would be significant that the Planning Committee review this as there is an excellent possibility that if poorly implemented most SMEs may be pushed out of business. 

 Generally, with the new bill aiming to raise the government revenue and minimise debt reliance, some of its immediate impacts on the citizens are adverse as it is likely to affect the cost of living and can even push some enterprises out of business due to the higher operation costs and reduced disposable income. The Treasury should mainly focus on enhancing compliance and growing the economy rather than burdening the citizens and businesses with taxes.