Treasury Secretary Ukur Yatani faces a tough balancing act in his effort to cut fiscal deficit and tame public borrowing after MPs scrapped a number of proposed taxes, creating a Sh9 billion hole in his budget.
Last week, the National Assembly’s Finance and National Planning committee cancelled taxes proposed on pensions, helicopters and liquefied petroleum gas (LPG).
Mr Yatani had targeted to generate Sh8 billion by levying 14 percent value added tax (VAT) on helicopters, tractors, aircraft tyres, cooking stoves and motor vehicle imports.
Treasury also looked set to raise Sh320 million from removal of zero rating on LPG and Sh771 million on the removal of import declaration fees on helicopters.
MPs however said that taxing helicopter imports and parts would hurt the aviation industry “that is recovering from the coronavirus pandemic.”
“The aviation industry has been one of the most affected sectors by Covid-19 pandemic. Time should therefore be given to allow the industry to recover before the imposition of the taxes,” the Joseph Limo- led committee on National Planning said.
The Treasury had hoped new tax measures – together with scrapping of exemptions – would help raise an additional Sh38.85 billion to increase Kenya Revenue Authority collections to fund the Sh3.2 trillion budget.
The MPs decision is set to further widen deficit that currently stands at Sh840 billion, raising appetite for public loans.
This gap has been blown by offering tax breaks on sales and incomes to cushion consumers from the effect of Covid-19, measures that created a Sh172 billion hole.
The International Monetary Fund last month warned that this policy might lead to higher debt if the revenue gap is not filled and asked Kenya to reverse the corona taxes immediately the crisis is contained.
Mr Yatani had said that scrapping incentives was the only way to bridge this gap, justifying that the rich and politicians have been taking advantage of the relief without being passed it on to consumers.
“The idea was that there are good reasons but are the benefits being passed over to consumers? Like now we were giving tax expenditure to helicopters and planes. The idea was to promote tourism but how many tourists use choppers to travel? Who usually uses them? It’s me and fellow politicians, why should we subsidise them?” He posed.
“We carried out a sample on fertiliser one from a government institution that is being subsidised and the other one is not. The private dealer sells fertiliser cheaper yet is paying more taxes than the government agency which is subsidised. The idea has been lost,” he said.
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