Pensioners spared from tax as Kenyans are handed cheaper Unga


Pensioners spared from tax as Kenyans are handed cheaper Unga
File image of packets of maize flour at a supermarket. PHOTO| COURTESY

In Summary

  • In its report for the consideration of the 2020, Finance Bill tabled on the floor of the house on Thursday, the Committee moved to assure the elderly of their full monthly stipend after uproar on the attempt to shave the retirees’ life-line.
  • On a larger scale, all Kenyans are set to benefit from a potential cushion in the price of unga as the Committee approves the reclassification of the supply of maize, cassava and wheat flour from the tax exempt schedule to the zero-rated category.
  • Alcohol manufacturers and their respective consumers are meanwhile in for a shock as the Committee not only upholds but also adjusts the coverage of excise duties on both beer and spirits.

The National Assembly Finance and National Planning Committee has thrown out proposals that would have seen monthly pension payment attract tax payments.

In its report for the consideration of the 2020, Finance Bill tabled on the floor of the house on Thursday, the Committee moved to assure the elderly of their full monthly stipend after uproar on the attempt to shave the retirees’ life-line.

“The ammendment is intended to retain the exemption for income of the National Social Security Fund (NSSF). The deletion of the ammendment is intended to protect the benefits of members of the NSSF,” noted the Committee.

The reversal on the shrewd tax proposal follows recent uproar from both pensioners and industry on the impact of the proposed taxation.

In its submission to the Committee, the NSSF argued against the passage of the tax proposal saying it is a reversal on basic social security to Kenyan workers.

“Taxation of NSSF’s income will erode the benefit to its members and goes against government policy to provide social security,” the NSSF said.

Tax Advisory services firm KPMG had earlier opposed the proposal citing its hit to the elderly, the majority of whom hardly have alternative sources of income.

“This proposal will reduce the retirement benefits available to retirees and is also contrary to the general provisions for exemption of the income of registered retirement schemes,” KPMG had noted in its analysis of the Finance Bill.

The proposal was initially contained in April’s Tax Laws (Ammendment) Bill before being booted out by Members of Parliament on the basis of reduced income payable to pensioners.

The rejection by the National Assembly was further backed by the National Treasury own curious U-turn on its own proposal as it argued in submissions to the Committee that taxing the pensions would have been devastating to the elderly.

The dropping of the draft legislation will be welcome news to millions of pensioners whose livelihoods are pegged on the fixed monthly stipend.

Cheaper ugali

On a larger scale, all Kenyans are set to benefit from a potential cushion in the price of unga as the Committee approves the reclassification of the supply of maize, cassava and wheat flour from the tax exempt schedule to the zero-rated category.

The reclassification which reverses a previous move to classify the supply of unga as exempt mean manufacturers will now be able to reclaim input VAT from the processing of the maize flour and lower output cost to consumers.

The adopted ammendment will equally translate to major gains to Kenyans as maize flour remains a staple essential in the majority of households.

The controversial proposal to levy VAT on LPG gas has also been rejected as it is seen hurting Mwananchi along with eating into gains made in the advancement of clean energy use in the country.

The Finance and National Planning Committee has however voted to keep other proposals contained in the Finance Bill including the minimum tax levied on loss making companies and the end of tax remissions on savings made under the Home Ownership Savings Plan (HOSP).

In its counter argument to submissions made by various entities opposing the bill, the Committee said there are multiple avenues towards the obtainment of affordable housing to Kenyans.

“There has been a low uptake of Home Ownership Savings Plan (HOSP) because most people prefer arrangements that allow for occupation of a house while paying for it rather than saving to buy a house,” said the Committee.

“Additionally, the government has introduced various affordable housing initiatives such as affordable housing scheme relief and mortgage interest deduction to encourage individuals to own a home which is what most individuals would prefer.”

Beer tax

In spite of protests, the Committee has retained Treasury’s proposal to levy tax on loss making entities at the rate of one percent on gross annual turnovers.

The upholding of the proposal backs Treasury own argument of sealing revenue loss loopholes through potential under declaration of earnings.

“Some companies continue to declare losses year-in-year out hence not contributing to the Exchequer in terms of tax revenue. In order to ensure all taxpayers, contribute to the construction and maintenance of our infrastructure, I have proposed to introduce a minimum tax that will be payable by all companies at the rate of one per cent of their gross turnover,” said Treasury CS Yatani during his budget presentation on June 11.

Digital marketplace players will also remain in the hook for taxation with the Committee upholding the proposed 1.5 tax on gross sales to online firms which is to be offset against other domestic taxes levied on entities.

Alcohol manufacturers and their respective consumers are meanwhile in for a shock as the Committee not only upholds but also adjusts the coverage of excise duties on both beer and spirits.

In its recommendations to the House, the Committee has amended the coverage of the exercise duty to include more products as it sets the lower threshold for the levy on all beers and spirits who alcohol strength exceeds six percent in a move to enhance revenue collection.

The proposal will be salt to the wounds to players in the industry who are already up in arms over the recent slash on tax remissions on kegs.

The joint recommendations of the Committee will now be the subject of consideration by MPs before they are enacted into law.

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Story By Kepha Muiruri
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