Kenya Revenue Authority(KRA) is planning to go ahead and implement a tax increase in at least 30 consumable products including fuel, bottled water, juice and beer in October.
KRA announced last month that it would adjust the tax for such products by about cost 5.43 percent — being the average inflation for the year period ending June 2020— costs which will be passed onto consumers.
However, Kenya Association of Manufacturers (KAM) is not taking a back seat in the matter. Kam argues the increment in excise duty at a time homes and businesses are already struggling with coronavirus-induced depressed earnings will further hurt consumption.
Under the current law, the KRA Commissioner-General only needs to issue a legal notice stating the adjustment for the new tax to become effective.
The tax increase will hit consumers hard as households and traders reel from the impact of the coronavirus disease, which has reduced purchasing power due to job cuts and movement restrictions, forcing businesses to cut down their activities.
“KRA should not implement the proposed inflationary adjustment rate from 1st October 2020 until after Kenya is declared pandemic free and full recovery of excisable goods manufacturers achieved,” KAM chief executive Phyllis Wakiaga wrote in a letter to KRA Commissioner-General Githii Mburu on Friday.
Tax consultants and consumers expected the KRA to review the prices in January in line with a new law, which takes effect at the start of next year and requires the taxman to seek the approval of Treasury Cabinet Secretary and Parliament for the new inflation tax.
But Mr Mburu has chosen to apply the current law which only requires him to issue a legal notice stating the adjustment for the new tax to become effective.
The chief taxman did not publish the rate at which the duty will adjusted, only stating he will use “the average inflation rate for the financial year 2019/2020”.
Ms Wakiaga argues in the letter, which also seeks a meeting between KAM and KRA this Thursday, the omission of the adjustment rate in the notice “denied the public full information required for public participation”.
Inflation adjustment tax was introduced in 2018 and is seen as a way of protecting the government’s spending power from erosion by rising cost of living.
KAM says inflation adjustment amid Coronavirus economic fallout will exacerbate the decline in excise duty collections which fell 6.4 percent in the financial year ended June.
The impact will directly and indirectly be felt by all households as it also affects pricing of fuel such as diesel which is used in farming, transportation and manufacturing whose products are consumed by both wealthy and poor homes.
