Wary of inflation, Kenya lawmakers push to halve cooking gas tax

The country’s inflation rate climbed to 7.1% in May.
Image: Bloomberg News

Kenyan lawmakers seek to cut or block proposed tax increases on key items, including cooking gas and digital services, to curb inflation ahead of August elections.

The value-added tax on cooking gas should be halved to 8% “to protect Kenyans from the growing cost of living,” Gladys Wanga, the chairwoman of the legislature’s finance committee, said during a session in the National Assembly on Thursday. Consumers have been paying 16% Vat on the gas for almost a year.

The lawmakers also rejected the National Treasury’s plan to double the digital service tax to 3%, saying the additional cost will be passed on to users. A threshold for digital services companies to register for value-added tax was set at a turnover of 5 million shillings ($42 789) “to protect the very small businesses,” Wanga said.

A final vote on a finance bill that adjusts the tax regime is scheduled for next week and once approved, it will be sent to the president to sign it into law.

Rising living costs are a key concern as the East African nation prepares to vote for a president, lawmakers and county governors on Aug. 9. The central bank on Monday unexpectedly raised the benchmark interest rate for the first time in almost seven years, citing inflationary risks.

Kenya’s inflation rate climbed to 7.1% in May, and central bank Governor Patrick Njoroge sees it exceeding the monetary policy committee’s 2.5 to 7.5% target range within months. The housing, water, electricity, gas and other fuels index, with a weighting of 14.6% of the inflation basket, rose 6%.

The lawmakers also agreed that:

  • A proposal to triple the capital gains tax to 15% should be approved.
  • Bioethanol stoves, fertiliser and corn flour, the staple food, should be exempted from value added tax.
  • Imported cellular phones should be subjected to a 10% excise duty.
  • A 20% tax should be imposed on digital lenders’ fees, and a 7.5% tax on betting, gaming, prize competition and the lottery.
  • The excise rate on beer with an alcohol content not exceeding 6% should be retained at 121.85 shillings a liter to shield sorghum and barley farmers in the event of higher prices hitting demand for their produce.

The finance committee rejected a Treasury proposal to force taxpayers to deposit half of their disputed-taxes amount before filing an appeal was rejected. That “will reduce working capital for businesses and also deny justice to taxpayers where they are unable to raise the amount,” it said in a report.

© 2022 Bloomberg

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