Kenyan Parliament Passes Raft of New Taxes in Chaotic Vote

(Bloomberg) -- Kenyan lawmakers approved a series of new taxes in a chaotic parliament session that exposed deep differences over how the government should fund this year’s record budget.

The passage of the Finance Bill marks the culmination of a month-long battle between MPs and President Uhuru Kenyatta over a new fuel levy that triggered nationwide protests. It also raises costs for Kenyan consumers using services offered by mobile-phone companies like Safaricom Plc, banks including KCB Group Plc and vehicle distributors such as Simba Corp.

The most contentious clause in the bill was an 8 percent value-added tax on petroleum products. Speaker Justin Muturi said lawmakers voted in favor of the levy despite claims by some legislators that the motion was defeated and even after parliament screens showed there were three more lawmakers present in the house than the constitutionally mandated 349.

“The clause, which was under consideration at that point, was carried,” Muturi said to demands by hecklers that the tax be reduced to zero.

Kenyatta signed the bill into law Friday morning, according to a Twitter post.

The fuel levy had been introduced at 16 percent on Sept. 1, before Kenyatta proposed halving it to quell a public outcry. Some lawmakers demanded it be left at zero and its implementation postponed to 2020, though it’s already been blocked twice since being legislated in 2013.

‘Dictatorship vs Democracy’

“This was a showdown between dictatorship and democracy,” Member of Parliament Caroline Waruguru told Citizen TV. “I am concerned with the dictatorship we have been shown by the leadership of this house. We shall proceed to the courts to protect the rights of consumers.”

The government will raise 35 billion shillings ($347.3 million) from the new fuel tax, which will help finance a record 2.47 trillion-shilling budget. The Treasury, which estimates a deficit equivalent to 5.9 percent of gross domestic product in the year through June 2019, has already cut spending estimates just three months into the financial year.

“Higher taxes and government revenues may give a quarter or two of comforting debt serviceability ratios,” said Deepak Dave, founder of Nairobi-based Riverside Capital Advisory. “But there may be a medium-term threat to overall economic growth, poverty reduction and employment. More radical design of the taxation system is needed urgently.”

Consumers will now also pay a 15 percent excise tax on telephone and Internet-data services, and 20 percent on fees for money transfers by both banks and telecommunication companies. The duties on calls, Internet and money transfers may hinder financial inclusion in the East African nation, according to Mbiki Kamanjiri, a tax manager at Grant Thornton.

“Generally excise duty was taxed to discourage indulgence in what was considered sinful or harmful goods,” he said by email in Nairobi. “This over the years has turned to be a tax on inelastic goods, goods that people will still consume regardless of the cost.”

The government should have maintained a 35 percent tax on betting and lotteries, rather than reduce it to 15 percent, Kamanjiri said.

Other clauses passed by legislators include:

• A reduction of income tax from betting winnings to 15% from 35%
• 1.5% of gross pay mandatory to a National Housing Development Fund by employees
• An 18 shilling/liter anti-adulteration levy for kerosene users to deter the dilution of diesel with the cheaper fuel that’s used for cooking and lighting
• 20% excise duty on motor vehicles, excluding locally assembled vehicles, school buses
• 30% excise duty for vehicles with a capacity above 2,500cc
• 20 shilling/kg excise tax for sugar confectionery, including white chocolate

To contact the reporters on this story: David Herbling in Nairobi at dherbling@bloomberg.net;Adelaide Changole in Nairobi at achangole2@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Helen Nyambura, Michael Gunn

©2018 Bloomberg L.P.