Crossing the Chasm: Public Input Shapes the Finance Bill 2024
Monday, 10 June 2024, marked the end of public participation on the tax proposals made in the Finance Bill 2024 (“the Bill”). Like last year, stakeholders turned out in large numbers to voice their opinions on various clauses of the Bill, calling for some clauses to be amended or dropped before the Bill is passed. This year, in addition to the usual oral submissions from stakeholders who had already submitted written comments, the departmental committee on Finance and National Planning (“the Committee”) set aside a day for what was dubbed a public hearing. This allowed any member of the public to share their views and proposals with the committee.
This year’s Bill seeks to raise an additional KES 302 billion, the largest amount in the history of Kenya’s Finance Bills. This represents a 43% increase compared to Finance Bill 2023, which aimed to raise an additional KES 211 billion. Notably, the revenue target for Finance Bills since 2019 has ranged from KES 35 billion to KES 50 billion. Due to this significant increase, the Finance Bill 2024, similar to the Finance Act 2023, has explored several unfamiliar territories to achieve the proposed target. It is, therefore, no surprise that last year’s Bill and the current one have attracted a lot of debate from all quarters, including the common mwananchi.
Key Considerations as the Bill Enters the Crucial Stage
As the National Assembly debates the Bill before it is passed into law, it is essential for lawmakers to consider the broader impact of the proposals on the economy. Here are some key considerations they should keep in mind:
Potential Negative Impacts of Some Proposals
While some proposals might yield tax revenue in the short run, they could cause more harm than good in the medium to long term. These include the proposed introduction of a motor vehicle tax, an eco levy, and VAT on selected financial services. For instance, the motor vehicle tax is likely to have several negative impacts. The insurance sector will bear the greatest burden due to its central role in implementing the tax and the expected reaction of policyholders, who may downgrade to third-party insurance or opt out if they cannot afford the additional charge on top of the insurance premium. This could negatively impact the performance of the insurance business and consequently tax collections. Additionally, its short-term benefits are likely to outweigh the long-term multiplier effects. Considering the significant taxes already paid by motor vehicle users in the form of taxes on vehicle purchases and high fuel taxes and levies, the National Assembly should consider dropping this proposal before passing the Bill.
Revisiting Prior Years’ Changes
The Bill presents the National Assembly with an opportunity to revisit some tax provisions enacted last year that have had negative consequences for businesses and make the necessary changes this year. Key changes that need revision include the restriction on the deductibility of invoices that are not e-TIMs compliant, the abolition of waiver of penalties and interest, and the end date of the tax amnesty. If the provision requiring taxpayers to only take deductions for expenses supported by eTIMs compliant invoices is not deferred, it could lead to the forfeiture of genuine expenses incurred by many taxpayers—not because they are non-compliant, but because the implementation window for e-TIMS has been extremely short for both the Kenya Revenue Authority (KRA) and businesses at large. As of this writing, many technical challenges are still being experienced by compliant taxpayers due to constant system breakdowns. This indicates the need to provide sufficient time for a robust system to be developed, tested, and stabilized before taxpayers are penalized for challenges beyond their control. Globally, implementing electronic invoices has been staggered over several years to ensure businesses are adequately prepared and to manage disruptions. The abolition of the waiver of penalties and interest should also be reversed, as many cases deserve a waiver where there are justifiable reasons, such as grey areas in the law. Some proposed changes should be saved for later.
Avoiding Frequent Tax Policy Changes
The Finance Bill is prepared annually, giving the Government an opportunity to defer some changes to subsequent years. The Finance Act 2023 has already had a huge impact on taxpayers, and it is prudent to pause and allow the full impact of recent changes to be felt. Taxpayers need time to adjust to these changes before introducing other equally burdensome taxes and levies. Frequent changes in tax policies make it difficult for taxpayers to comply and increase the cost of doing business, making the country unattractive for investment.
Preventing Tax Leakage
Proposals likely to lead to tax leakage should be avoided at all costs. A good example is the proposed exemption of reimbursements made to public officers. This proposal would deprive the Government of much-needed revenue and likely lead to significant tax leakage through tax planning.
As Will Rogers, a renowned American social commentator, once said, “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.” Most taxpayers will identify with this quote in a few days once the Bill is passed into law, no later than 30 June 2024.
In the face of a heavy debt burden, currently averaging 70% of GDP, it is worth appreciating that the Government faces a tough situation of balancing meeting citizens’ demands and raising additional revenue to finance its expenditure. That said, the Government should consider the concerns raised about the tax burden and ensure the policies do not curtail economic growth. The legislature must ensure that the opportunity granted to the public under the Constitution for public participation is not taken for granted and that the public’s voice counts. We can only hope that the Committee and the National Assembly will seriously consider the input from various stakeholders and adopt those that would address key concerns and result in a better outcome for taxpayers and the economy at large.
Navigating the complexities of tax legislation and understanding its impacts on your business can be daunting. If you need expert advice or CFO services to help you manage these changes effectively, consider reaching out to Revise Finance. Their team of seasoned professionals is equipped to provide tailored financial consulting services that can help your business thrive amidst evolving tax policies.
