Salaried workers to lift hustlers

In keeping with the Ruto administration’s pledge to go after the privileged in order to help the poor, amendments to the Finance Bill 2023 proposed by the National Assembly’s Budget and Finance Committee target the middle class for higher taxes and levies while providing some relief to low-income earners.
The Robin Hood effect refers to a policy in which the less well-off benefit economically at the expense of the better-off.
The committee has lifted the Ksh2,500 restriction on housing charge contributions while keeping the higher VAT on fuel and the new tax bracket of 35% for upper earners.
By converting the projected 3.0% housing fund into a 1.5% charge, employees earning more than Ksh167,000 per month will see their contribution exceed the prior limit of Ksh2,500.
Kuria Kimani, chairman of the finance committee, said this will ensure justice and equity in contributions across all income levels.
He says one of the most difficult difficulties for the government is generating the necessary Ksh2.8 trillion in income in an economy still reeling from shocks.
Speaking prior of the budget address, Treasury Cabinet Secretary Njuguna Ndung’u called the macroeconomic environment characterizing Kenya Kwanza’s first budget as “the perfect storm.”
Prof Ndung’u stated that crafting the Ksh3.6 trillion spending plan was a delicate balancing act as the government aims to unlock fresh revenue through the much-debated Finance Bill 2023.
“This is the first Budget I’m going to give…It is also the first Budget based on the Bottom Up Economic concept. The notion is that we are emerging from a particularly damaging type of economic stagnation. “We call it a perfect storm if you want to replicate what the President’s Economic Advisory Team has said,” Prof Ndung’u said in an interview on Wednesday.
“What makes this a perfect storm?” There were supply-side disturbances in energy costs even before we could overcome Covid-19. Then came the worst drought in 40 years.”
The man who used to wear a monetary hat but now wears a fiscal hat stated that the economic landscape has changed dramatically since he left the Central Bank of Kenya.
“When I was Governor of the Central Bank of Kenya, our tax revenue-to-GDP ratio was 22%, I’ve realized it has dropped as low as 13.7% and is now back up to 15.8%.”
As you may understand, a drop from 22% to 13.7% is terrible. “You can imagine how much ground we have to cover,” added the Treasury chief, who anticipates a Ksh720.1 billion budget shortfall in the fiscal year 2023/2024.
Despite arguments from various petitioners indicating that the bulk of wage workers fell significantly below this threshold, the parliamentary committee retained the Treasury’s proposal to raise the top band for Pay as You Earn taxes to 35% (for earnings above Ksh500,000 per month).
The committee, however, altered the Treasury’s proposal by inserting an additional band in which wages falling between Ksh500,000 and Ksh800,000 will be subject to a 32.5% tax, with individuals earning more than Ksh800,000 subject to a 35% tax.
However, both the Treasury’s recommendations in the Finance Bill and the committee’s modifications left the lowest tax rates untouched.
The planned new levies and taxes on pay slips come only months after a five-fold rise in the amount given to the State-backed National Social Security Fund to Ksh1,080 for top earners, further reducing workers’ take-home pay.
Kenyans are also expected to contribute more to the NHIF once draft regulations intended to implement adjustments made to the NHIF Act (1998) in 2022 are gazetted.
Salaried individuals who previously contributed between Ksh150 and Ksh1,700 depending on pay level will now pay a standard rate of 2.75% of gross monthly salary for NHIF coverage under the new laws.
A self-employed person will be required to make a specific contribution of 2.75% of declared or assessed gross monthly income, subject to a minimum of Ksh300, as opposed to the present flat contribution of Ksh500.
Government officials, including President Ruto, have previously stated that the deduction for affordable housing is not a tax, but rather a contribution to the NSSF.
Mr Kuria, the Molo MP, however, stated in a television broadcast on Tuesday night that the cash will now be transferred to the consolidated fund, essentially making the donation a tax.
It means that contributors who do not receive the promised affordable housing cannot obtain a return after seven years, as was intended in the Finance Bill prior to the revisions.
“The proposal as presented to us by Treasury was discriminatory to those earning less and advantageous to those earning more.” “We are reducing to a flat rate of 1.5% so that anyone earning Ksh30,000, Ksh500,000, or Ksh6 million pays the same percentage of their income,” Mr Kuria explained.
The Ruto administration is promoting affordable housing as part of the President’s bottom-up economic paradigm, claiming that it will help remove slums and create jobs by constructing 250,000 dwellings each year.
However, critics argue that the contribution will cut take-home pay for workers who are already dealing with inflationary pressures.
The parliamentary committee also refused several requests to examine the clause that reinstated full VAT rates on petrol, stating that retaining it at 8% would be equal to providing a subsidy that would distort the fuel market.
While slamming wage earners, the committee granted reprieve to other sectors targeted for greater taxes in the Finance Bill.
The committee rejected the proposed 5% excise charge on wigs, false beards, eyebrows, eyelashes, and artificial nails, citing the need to promote the beauty sector’s recovery following the Covid-19 outbreak.
It also decreased the proposed withholding tax for those monetising digital content from 15% to 5%, and the excise on betting, gaming, and lottery stakes from 20% to 12.5%. These stakes are currently subject to a 7.5% excise tax.
Landlords have had their tax on rental income reduced from 10% to 7.5%, and importers have had their disclosure duty reduced from 3.5% to 2.5%. The railway development levy was also reduced from 2% to 1.5% in the Finance Bill.
Business Daily