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"id": 191944,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/191944/?format=api",
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"type": "speech",
"speaker_name": "Mr. Kimunya",
"speaker_title": "The Minister for Finance",
"speaker": {
"id": 174,
"legal_name": "Amos Muhinga Kimunya",
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"content": " Mr. Temporary Deputy Chairman, Sir, I beg to move:- THAT, the proposals relating to:- (a) Excise Duties; (b) Value Added Tax; (c) Income Tax; and (d) Miscellaneous Fees and Taxes contained in the Financial Statement for the year of Account 2008/2009 be approved. Mr. Temporary Deputy Chairman, Sir, I want to confirm to the House that His Excellency the President has signified his consent to this Motion. Mr. Temporary Deputy Chairman, Sir, for the information of the Members, we are referring to this Financial Statement. It contains all the taxation measures and these have been circulated. As I mentioned during the Budget Speech, we made a number of taxation measures that are aimed at restoring growth, expanding economic opportunities, further reducing poverty, promoting equity and tax compliance and also contributing to the national development. The measures that were proposed under the East Africa Customs Management Act and the Common External Tariff will only be implemented immediately after publication by the Council in Arusha. These measures are designed to improve the welfare of our people, reduce the cost of production, while offering some 1452 PARLIAMENTARY DEBATES June 26, 2008 protection to our infant industries. I have also, similarly, proposed a number of Excise Duty measures. Just by way of highlighting a few, one of the major changes is the introduction of a hybrid of the retail selling price and the characteristic-based Excise Duty regime for cigarettes. I just want to explain the background to this because, for a long time, we had been basing our Excise Tax regime for cigarettes on the retail selling price. That has one weakness of limiting the manufacturers from increasing their prices, because immediately they jump from one price range to another, it then attracts Excise Duty at a different rate. In these days when inflation has eventually caught up with some of those prices, we have had prices almost being constrained from moving, because they will move into different tax bands. Last year, we did attempt to move into the more internationally practised method of defining excisable goods by a certain characteristic, so that the value does not matter - whether you use the selling or the manufacturing. But you know that anything that looks like that should attract a certain rate of Excise Duty. I believe the concept was not quite understood; as a result, major amendments were made in this House. Therefore, we thought, as a transitory measure, that we combine the two, so that we have either manufacturers opting to use the retail selling price, if it is convenient for them, or the characteristics of cigarettes. Here, we are basically defining them in four groups: the ones that do not have a filter and the ones with a filter, where you get the soft cap or the hinge lid. Within the soft cap category, we define the cigarettes into two. There are some which are shorter than 72 millimetres and others are longer than that. That is on the understanding that different people prefer different types of cigarettes. Accordingly, we are saying that as we transit from the retail selling price to the characteristic-based, let us create a transitory mechanism, where people can opt for either of the two. That is something that we want the House to debate on and advise us, so that we get concurrence as we move forward. Mr. Temporary Deputy Chairman, Sir, the other issue that I want to highlight is the harmonisation of the Excise Tax on beers, where traditionally we had a big divergence between the malt beers and the non-malt beers, as well as the stout. Stout has traditionally been taxed higher; malt came second and then the non-malt. We realised that the tax regime was causing people to shift consumption, and so we have done that correction. We have proposed the measures that we did by increasing a bit on the non-malt, slightly on the malt beers and allowing the stout to remain constant. Now they are all at par. Mr. Temporary Deputy Chairman, Sir, I also introduced a new duty regime for taxing portable spirits and wines, again, just based on alcohol strength rather than the traditional way where we were looking at a litre of spirits and the percentage. We are now saying that different spirits may have different alcohol volumes. The typical spirit is about 40 per cent alcohol, but there may be some that are higher or lower than that. We are saying that, let us just use Kshs7 as the basis for one per cent of alcohol per litre; people can then multiply, depending on the strength, to make it easier for purposes of computation and also to recognise the different strengths of alcohol. I have also proposed to zero-rate certain products, including bread and rice for the Value Added Tax (VAT) purposes to make these commodities affordable to consumers. I would like to get hon. Members' reactions in terms of how they see that happening, because some of the traders are yet to adjust their prices and we need, as a House, move together on this. I also proposed to zero-rate VAT on international air travel in line with international best practice. This will help a long way in getting our national carrier, Kenya Airways, to be more competitive against the rest of the airlines, which were not being affected by this. Of course, Kenya Airways is the only carrier which originates and pays taxes here, while other airlines pay their taxes abroad. June 26, 2008 PARLIAMENTARY DEBATES 1453 I have also taken a number of steps within the Income Tax Act. I just want to highlight a few. One of the major ones, which is good to the housing sector, was extending the mortgage interest relief, that was being enjoyed on other mortgages except those of the National Housing Corporation (NHC). We know the role that NHC is playing in tenant purchase schemes, and we have decided to extend that relief to its mortgages, so that people who buy their houses get that mortgage interest relief up to Kshs150,000 per annum as is the case with any other mortgaged house. We also exempted from tax the lumpsum pension that is paid to our senior citizens; I believe that, that has been very well received out there. We have also proposed some restriction of interest and penalties to no more than 100 per cent of the principal due in order to arrest further calculation of tax liability in line with the In Duplum Rule in the banking sector. The rationale for that was that Kenyans had become very tax compliant. People were coming out well, but most of them have been saying that they fear the tax penalties that are levied on them on a compounded basis. You will find that when people have agreed on a tax liability of, say Kshs2 million, penalties could well exceed Kshs4 million. We are talking about taxes relating to prior years. Rather than keeping on having to review them and use discretion as to how much waiver to grant or not, we have taken the view that we should apply the same In Duplum Rule, which the House supported, for interest to curb the interest applicable on the taxes to not more than double, on the understanding that at that point the Kenya Revenue Authority (KRA) should by then have collected that tax. So, it should not be made to accumulate as if it is a loan to the taxpayer. Once it is assessed it should be collected and if not collected, there are mechanisms as to how the enforcement can be effected. Mr. Temporary Deputy Chairman, Sir, one of the other measures, that will be coming within the Finance Bill, is that we have also included an incentive to whistle-blowers. People who tell us who is not paying taxes, are entitled to some compensation, which has been rather too little and we decided to scale it up to 5 per cent of the tax recovered, subject to a maximum of Kshs2 million. I do hope that, that will help bring out more people to give us more information on who is not doing their national duty. Somebody wanted to claim it on the understanding that hon. Members will be paying tax. I told him that hon. Members pay taxes on the basic salary. So, he did not discover anything new, and so he could not claim to be paid 5 per cent. I think that somebody was just being mischievous. I believe that it is an incentive we are giving, so that we can bring in as many people as possible into the tax net. The other interesting item which I expect to get more comments on from the hon. Members, as we discuss these tax proposals, is the issue that touches on all of us here, which is the taxation of the allowances that are paid to us as hon. Members and constitutional office holders. In effect, we are saying that nobody in Kenya, from the President to the lowest paid public officer, will be exempted from the national duty of paying their taxes. I am very happy because in all the discussions, I think we all agree with the principle. I think the issue seems to be with the modalities. I think, as we debate and continue engaging between now and the Finance Bill, we will have worked out exactly how to implement the modalities, having agreed on the principle. Mr. Temporary Deputy Chairman, Sir, I could go on and on again but, I do not have to discuss everything. I do not want hon. Members not to have anything to contribute. I have just mentioned a few of those measures. But, obviously, there is a whole list of the various tax proposals that we made. As the Chair mentioned before leaving, it is this Committee that will guide us so that, even as we move on with the application of the provision or collection order, which the law allows me to use to collect the taxes until this House passes the Finance Bill, at least, we will be guided in terms of what the feelings of hon. Members, as the representatives of the people, are. Mr. Temporary Deputy Chairman, Sir, an issue has also been brought in severally about the 1454 PARLIAMENTARY DEBATES June 26, 2008 role of the House in the budgetary process. This is a critical step in the engagement of the House in terms of coming up with: \"This is what you have told us you want to do as Treasury. This is what we would have preferred we would have done!\" We can take all that feedback now and anything that we can then pick on and discuss with the Committee on Finance, Planning and Trade, we would then be informed so that, by the time we bring the Finance Bill here, we will have taken into account some of the views of hon. Members. I do not believe there is any better forum for engaging Members of Parliament than through the Floor of this House, so that we can actually bring out everything as we feel it, and as it affects our people. We would think in terms of what was proposed, how it affects our people, what we would like to see changed and what new thinking need to come in next year. It is a continuous process. Even some of the things that were proposed by the members of the public--- We know that there are many issues that were brought to us. Having looked at them and subjected them to a technical scrutiny, there are some that we felt we could pend further. Again, I think some of them will be coming as part of this debate. It will be a pleasure to engage further. Mr. Temporary Deputy Chairman, Sir, I know that there are many other things that will come up, as hon. Members start debating. We will be here to explain further. I know that the Finance Bill is drafted in a technical format. So, again, it may be very difficult to see within the Finance Bill what exactly--- \"Change this schedule from this to this. What does that mean?\" I believe that, that is part of the debate. That is why we highlighted the significance of the Finance Statement. But, like I said, there will be one or two others. You will also note - and this is something that hon. Members raised with us - that there is the issue of some unscrupulous traders who have been dodging tax by branding their products as traditional liquor, on the understanding that traditional liquor does not fall within the definition of what is excisable. But, again, within the changes that we will be making, we will be defining beer to include traditional beer, so long as it is produced for sale and not for domestic use. So, if some elders in a village decide to brew some muratina or busaa, but it is purely for non-commercial purposes, that is not considered beer for tax purposes. But if it is done by the local barman as part of his sale, then that will be considered as a beer and there will a tax payable, again, in line with all the other beers. So, again, those are part of the changes that we will be bringing. We have been listening to the people and asking: \"What is it that the people would want to see?\" Like we said, part of these measures are meant to raise revenue, partly to correct some of the social issues and partly to re-direct resources in certain directions through policies. I think that is the kind of feedback that we would want to see, and welcome as part of the debate for the next three days. Mr. Temporary Deputy Chairman, Sir, like I said, this is only the first part of the debate. I do hope that by the time we close this debate within the next three days, we will have been wiser and taken on board some of the issues that we need to address to move forward, as we then discuss the Finance Bill at the Committee level. I also want to mention that Members of the House would also be free - I am sure the Temporary Deputy Chairman would be inviting them - to give their views directly to the Committee on all the matters so that, by the time we bring it here, we will have the concurrence through the Committee of the entire House. We can do what is good for the Kenyan people by giving them power. Mr. Temporary Deputy Chairman, Sir, I really want to sit down and listen to hon. Members, so that I can get their views. I want to appeal to all hon. Members and other stakeholders for co-operation, so that we can pull together, again, in a constructive manner, so that we can rebuild this country of ours, which is now at a critical phase. We know that if it is not because of the taxes that we have been collecting, and it really shot up since 2003--- We have sustained it at about 21 per cent of the Gross Domestic Product consistently. If it was not because of that, by now, we would be going all over begging for support. But we were able to stand with our heads high and June 26, 2008 PARLIAMENTARY DEBATES 1455 say: \"We are proud to be Kenyans! We rely on ourselves to pay our taxes, do our development, pay for our Recurrent Expenditure and only seek support from people who support us for they believe in what we are doing, rather than because we are desperate cases looking for alms. We all know that begging is not the most interesting thing. But we are able to hold our own as Kenyans because of our tax collection. That all comes in terms of the reforms that we are making within the taxation sector by making it easier for people to comply; by people seeing what their money is doing and then saying: \"Yes! I am happy to pay my tax because I can see a road being done. I am happy to pay my tax because I can see extra security.\" I think that is what we want to see. We want to find out what are the other issues that we need to help through the taxation measures, to make it easier for people to comply; make more people to come into the tax net and collect more revenue, so that we can build this country together. Mr. Temporary Deputy Chairman, Sir, I want to go on and on but, with those remarks, I beg to move."
}