Kenya braces for tax hikes as Ruto signs contentious Finance Bill into law

Kenya’s president, William Ruto has signed the controversial Finance Bill into law, despite public outrage over the potential increase in economic hardship. Alongside the Finance Bill, a State House press statement revealed that Ruto also signed the Appropriations Bill pf 2023. 

While Ruto claims the Bill will aid his Kenya Kwanza government reduce the country’s reliance on external debt and rebuild its economy, the country’s opposition party, Azimio, argues that the Bill will condemn more citizens to penury. For context, the Bill seeks to increase the nation’s revenue by raising taxes. This made it trend online and offline for the past few months, provoking several protests on the streets. 

Following Ruto’s consent, the Bill, which remains the subject of many petitions in court, will take effect by July 1. As that day draws near, it is necessary to consider the vital aspects of this Law. 

Two major highlights of the Bill are the Value Added Tax (VAT) on fuel products and the Housing Tax. The Bill also brings new taxes on content creators and transactions involving digital assets. Technext previously reported that content creators in the East African country had rejected the forthcoming taxes, with some calling for the formation of a union.

From July 1, Citizens will be charged a whopping 16% on petroleum products, a key indicator that the cost of transportation and living, in general will increase as a result. The VAT was 8% before now. The Ruto-led administration aims to rake in Sh50 billion annually just from the VAT on petrol-based goods. 

Aside from being charged 16%, Kenya will now witness a hike in the pump price of diesel, kerosene, and other petroleum products. A lower of the above commodities will be sold for an extra Sh10.26. Interestingly, the Finance Bill would have caused the pump price to be higher but that’s not the case thanks to a decrease in the Railway Development Levy from 2.5% to 1.5% and Import Declaration Fee from 3.5% to 2.5%.

To enable Kenyans access an affordable housing scheme, the Finance Bill proposed a 1.5% tax which both employers and employees would pay to grow the Housing Fund. However, there are concerns that many companies will likely lay off workers due to the increased strain on their revenue. 

Not only does the housing tax increase the wage costs by 1.5% for employers, but workers will also part with the same figure. This, coupled with the current economic situation, isn’t a good combination. It’s no surprise that The Federation of Kenya Employees (FKE) foresees “an agitation by workers demanding that the government increases wages.” 

The FKE isn’t the only union worried about the housing levy and increases in fuel pump prices. According to the Kenyan Association of Manufacturers (KAM), the country’s manufacturing sector could suffer the loss of 16,000 jobs at least. Kenya’s government expects to generate Sh83 billion yearly from the housing levy alone. 

Basic commodities like food and commonly used services like mobile money transfers will also be taxed. The Bill also brings varying Pay As You Earn tax categories. For those earning a gross amount of between Sh500,000 and Sh800,000 monthly, they’ll pay a tax of 32.5%. 35% tax applies to those earning above Sh800,000 monthly.  

Read also: Kenya to impose digital asset tax on crypto, NFTs, online content

Digital content and asset taxes in Kenya’s Finance Bill

Kenya’s digital transformation has grown in recent years, helped by the steady rise of content creators using platforms like YouTube, and the increased use of digital assets for transactions. Just recently, a report found that Kenya is the world’s biggest user of TikTok, a platform for short-form mobile videos. 

However, digital creators will now pay a 5% withholding tax on the income gotten from various means including content monetization on social media platforms, brand sponsorships, and affiliate marketing. Interestingly, lawmakers initially proposed 15%, but it was reduced to 5%. Last week, a member of parliament, James Nyikal, sought the House’s support to jettison the digital content tax. His proposal was rejected.

Additionally, transactions using digital assets like cryptocurrencies and non-fungible tokens (NFTs) will be charged a 3% tax.  

An uncertain future 

While Ruto and his party strongly believe that the Bill and its new wave of taxes will help Kenya ramp up its revenue generation, many worry that the people will suffer heavily. With the looming increase in essential commodities like petrol and a wage cut because of the housing levy, one can only wonder how many Kenyans are willing to outlast the coming hardship.

The Bill’s assent didn’t go down well with the opposition coalition who considered it “an experiment that Kenyans can ill afford.” Azimio has invited citizens to a rally tomorrow at Kamukunji Grounds where it hopes to discuss further steps regarding the bill and its implications.  

Azimio has led multiple demonstrations in the past calling for the Bill to be reviewed and the problematic areas amended. It’s safe to say that more protests are on the horizon now that the controversial Bill is law.