Nairobi, Kenya – The National Assembly of Kenya has approved a controversial amendment to double the Value Added Tax (VAT) on petroleum products from 8 percent to 16 percent. This move, met with fierce opposition, is set to burden the citizens with higher fuel prices starting next month. The decision was made despite strong resistance from members of the Azimir Coalition, but government-allied MPs prevailed.
The approved VAT increase has elicited mixed reactions, with opponents voicing concerns over the economic hardships it may cause. Critics argue that this move will significantly impact people in rural areas and that increasing tax on fuel is not an effective way to boost the country’s economy.
“Our people are suffering in our rural areas; it is going to go to zero if we add tax on fuel. I, therefore, want to say it very clearly here that if you want to revamp the economy of this country, adding tax on fuel is not the solution,” said one of the opposing members.
However, proponents of the amendment cited the necessity of funding for developmental projects as a rationale for the tax hike.
After the voting, it was reported that 184 MPs supported the amendment while 84 opposed it. Consequently, the VAT on petrol, diesel, and kerosene will increase to 16 percent. Currently, with a VAT of 8 percent, petrol is charged at 13 shillings 48 cents per liter. This is expected to increase significantly next month.
Additionally, the National Assembly made a pivotal decision affecting high-income earners. The assembly approved two new tax bands on monthly salaries. Persons earning more than 500,000 shillings will now be charged a 32.5 percent tax on earnings above half a million but below 800,000 shillings. For those earning more than 800,000 shillings a month, a tax rate of 35 percent will apply to all earnings above that amount. Prior to this amendment, the maximum tax rate stood at 30 percent.
The Assembly was divided on the new tax bands, with 171 MPs in favor and 66 against.
Another notable decision was regarding the Housing Levy. The Assembly approved that businesses and employers can deduct expenditure on housing contributions for their employees before calculating the amount of tax on profits payable. This will take effect when the Housing Levy of 1.5 percent on employees’ gross pay is implemented, allowing employers to make similar contributions which will be deducted before calculating the tax payable on their earnings.
However, some MPs proposed to delete the clause on the Housing Levy, but failed to garner the necessary support.
Critics of the housing approach opined that it’s not the solution to solve housing issues in the country. Concerns were raised over the country’s food security and how prioritizing housing over agriculture could have detrimental effects.
As the changes in the VAT on fuel and new tax bands are set to take effect next month, Kenyans are awaiting the impact of these amendments on their day-to-day lives.
