A woman looks at clothing for sale at a market in Nairobi, Kenya, September 20, 2018. REUTERS/Baz Ratner
September 20, 2018
By Duncan Miriri
NAIROBI (Reuters) – Kenya’s parliament on Thursday backed by acclamation the halving of a new value added tax on oil products, bowing to complaints by Kenyans squeezed by high prices, but angry lawmakers wanting the tax scrapped altogether later demanded a formal vote.
The government has faced a fuel dealers’ strike, anger among commuters and a lawsuit after transport and fuel prices jumped when the 16 percent value-added tax on all petroleum products entered into force on Sept. 1.
In a televised special sitting, some members reacted to the passage of the eight percent tax by standing up and chanting “zero, zero”, leading the speaker to call for a formal vote, which is expected to take place later in the day.
Earlier parliament’s finance committee had backed a plan by President Uhuru Kenyatta to halve the 16 percent tax, raising expectations that the full house would approve the measure. Kenyatta’s Jubilee Party enjoys a comfortable majority in the assembly.
“This house has the obligation to balance the budget,” house majority leader Aden Duale told the house when he supported the 8 percent fuel tax.
The tax is part of a government bid to finance key priorities prudently while narrowing a fiscal deficit that the Treasury forecasts at 5.9 percent of economic output this year.
Like other frontier economies, Kenya has found it tough to secure external funding as emerging markets from Turkey to Argentina are buffeted by turbulence and tumbling currencies.
Kenya’s challenge was compounded by last week’s expiry of an International Monetary Fund stand-by loan arrangement for balance of payments support. [L5N1W01PS]
The fiscal deficit reduction targets were set by the IMF when it granted a precautionary credit deal two years ago that expired this month.
Legislators must approve the new value added tax proposal before Kenyatta can sign this financial year’s budget into law.
INVESTOR CONFIDENCE
Foreign investors are watching the events keenly.
“Kenya should be a country of concern for investors at the moment,” Charles Robertson, chief economist at Renaissance Capital, told a conference in Nairobi on Wednesday.
He cited the challenging external financing environment for frontier African economies and the risk that the shilling currency could weaken steeply in the near term.
The finance committee said in its report on the president’s proposals that the VAT measure is consistent with the government’s aim to avoid a huge funding gap in the budget.
The finance ministry had budgeted for 35 billion shillings ($347.74 million), which it expected to collect through the tax in the financial year to the end of next June, the committee said, adding the halved rate will allow the Treasury to collect 17.5 billion shillings.
“The intent of this amendment is to ensure that the exemptions in the VAT Act are reduced since this is the best practice,” the committee said.
Kenyatta said last week that further delaying the tax, which was passed into law in 2013 but never implemented, would compromise the government’s ability to fund planned social welfare and development programs.
The finance committee also supported Kenyatta’s proposal to increase taxes on some financial services.
GRAPHIC-Frontier market dollar market performance https://tmsnrt.rs/2lKanJE
($1 = 100.6500 Kenyan shillings)
(Additional reporting George Obulutsa and Humphrey Malalo, Editing by Maggie Fick, William Maclean)
