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"id": 216535,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/216535/?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 2007/2008 be approved. Mr. Temporary Deputy Chairman, Sir, His Excellency the President has signified his consent to this Motion. May I start by thanking hon. Members for the contributions during the debate in the Committee of Supply over the policy aspects of the Budget Speech and I believe the same spirit will prevail as we get this second opportunity to discuss the tax proposals within the Committee of Ways and Means. After this, we shall be bringing the Finance Bill to the House where we shall then be discussing the detailed proposals in terms of the tax and all the other aspects. Hopefully, we shall be passing the same into law for implementation. As Indicated in my Budget Speech, our economy has expanded from virtual stagnation in 2002 when it expanded by only 0.5 per cent to a high and sustainable rate of 6.1 per cent in 2006. However, to support and sustain this growth and achieve the desired goals that we have set for ourselves, there is need to work together as a nation. I, therefore, did appeal and continue doing the same to the hon. Members and to all Kenyans that its time we re-doubled our efforts, and united together for the sake of this year's theme which is: \"Vision 2030 - Working Together, on the Path To Prosperity\". This will be achieved through continued implementation of prudent economic policies and reforms. The planned reforms will be completed by the various tax proposals which are before this House. These proposals have been made after a very careful evaluation of various alternatives and in broad consultation with the various stakeholders, either before or after the Budget. I do believe that they make a significant impact if they are supported and expeditiously implemented. Mr. Temporary Deputy Chairman, Sir, the focus of our tax proposal this year is on promoting the business competitiveness and investment in addition to improving our tax compliance. I made various proposals under the Customs and Excise Act which include imposing of an Export Duty of 20 per cent or Kshs10 per kilogramme on used lead acid batteries. Basically, this will discourage the exportation of used batteries in order to protect jobs in the battery recycling plants. I have also proposed to exempt from Import Duty medical equipment imported by licensed hospitals to make medical services affordable to Kenyans as well as imposing Export Duty on raw hides and skins from 20 per cent or Kshs10 per kilogramme to 40 per cent or Kshs20 per kilogramme. This is to encourage local value addition in terms of availability of raw materials for our local tanneries and to create employment. We have seen the revamping of local tanneries as a result of the measures that we started last year. We do hope now that, by extending this tax on exportation of raw hides, we will be securing the raw materials that are required for all the other tanneries to actually open up. Farmers, especially, in Arid and Semi-Arid Lands (ASALs) will now have a ready market, so that, eventually, one day, meat may well be a by-product of the cows, while hides and skins will be the primary product, because of the value that will have been added. Mr. Temporary Deputy Chairman, Sir, also, to enhance the equity in taxation of all the 2132 PARLIAMENTARY DEBATES June 28, 2007 alcoholic beverages, again, based on the strength of alcohol and value, we have also proposed to adjust, first of all, the method of computation of duty, especially, on wines and spirits; by moving it from per proof litre, to per litre, which is what we can all see and touch; and, again, by converting it from what was the equivalent of Kshs200.40 per litre or 65 per cent, to Kshs280 per litre or 65 per cent. This, basically, translates to about Kshs70 per percentage of alcohol per litre, which, again, compares very favourably with the taxation within the region on beers and the other drinks. Again, we also did adjust and simplified the wine regimes from Kshs54.65 to Kshs85 per litre, or 65 per cent, whichever is higher. Again, in order to discourage the importation of second- hand motor vehicle spare parts, which to a large extent have contributed to accidents on our roads-- - We know quite well the sources, age and quality of all those motor vehicle spare parts. Our people are paying through the nose, but getting very poor quality. Therefore, I did propose to impose 20 per cent excise duty on all imported used motor vehicle spare parts. Again, this is something that we have done in consultation with our colleagues in the region, in order to ensure that one country is not left behind and, as a result, spare parts come through one country and end up in the other countries through the panya routes. Mr. Temporary Deputy Chairman, Sir, in order to reduce the cost of importation and make imported goods affordable to Kenyans, I did also propose to reduce the Import Declaration Fee (IDF) from 2.75 per cent to 2.25 per cent, for all goods that are imported from outside the East African countries, while no IDF will be charged on the goods that are imported from the East African partner states. As regards the plastic bags and sacks, I did propose to impose an excise duty of 120 per cent, and also a ban on very thin plastic bags, which are about 30 microgrammes or whatever measure we use. I have also made some further amendments to this by giving the affected industries an extra 90 days within which to comply. All these measures are expected to protect our environment from further degradation, encourage the industrial players to devise environmental- friendlier bags for our shoppers and get back the good old kiondos and African baskets for use when shopping, instead of just relying on the plastics. Mr. Temporary Deputy Chairman, Sir, under the Value Added Tax (VAT), I did propose various measures. Among them was the giving the Commissioner of Tax the powers to exempt some taxable suppliers, including lease-financing from the withholding system requirements, zero- rating of taxable goods and services supplied by registered by persons, for use in the construction or expansion of private universities, so that we can encourage more people to invest in private universities, for the benefit of our children's future. I also proposed to zero-rate such products as milk powder, again, to encourage the processing of excess milk into powder. Mr. Temporary Deputy Chairman, Sir, I further did propose to impose some VAT on rental of non-residential buildings. This is a measure that we had to take, because we also needed to allow people who own these buildings to claim their dues, but they cannot do so without necessarily charging them. But we have also taken care of rental property by making sure that this measure does not affect the rental or residential buildings, which will remain exempted. In addition, all the small-scale landlords, again, will be left out of the tax, since the law will only apply to those landlords who earn in excess of Kshs5 million, as per the new guidelines on VAT, where we are, basically, looking at the turnover threshold of 5 per cent, without recourse to what was previously being considered as designated services, and were being subjected to VAT regardless of the turnover. Now, everything has to start from Kshs5 million, including the rent on those business premises. I have also proposed to zero-rate taxable goods and services, that are supplied to specific projects for the construction of a minimum of 20 units of houses, that are done within planned development schemes, for the benefit of low-income earners. This is intended to encourage people June 28, 2007 PARLIAMENTARY DEBATES 2133 to invest in increasing the housing stock, especially, for some of the people living in the low- income areas. What we need is to get approval from the Minister for Housing, who will then prescribe that this scheme has now been approved for these purposes. We will then exempt them from VAT, which now means that the construction of those houses will be cheaper for either onward renting or re-selling to the low-income earners. Mr. Temporary Deputy Chairman, Sir, to encourage the development and provision of affordable housing and shelter, I have also proposed to give industrial bidding allowance to persons constructing residential houses and buildings for rental purposes, again, for the low-income earners. What this means is that people will be able to recoup their investments over time, in addition to the rental income that will be coming in. In recognition of the invaluable contribution by our senior citizens, I did also propose to exempt from tax the monthly pension that is granted to them. I have also proposed to invite all the citizens of the East African partner states to invest in the Nairobi Stock Exchange, as if they were Kenyans. They will earn dividends just as the Kenyans. They will only pay a withholding tax of 5 per cent. In addition, they will also be entitled to the same shares that are reserved during the Initial Public Offers (IPOs), as what was being reserved for Kenyans; for which we have also increased from 25 per cent to 40 per cent. Mr. Temporary Deputy Chairman, Sir, under the miscellaneous amendments, I did propose to remove the public service vehicle licences charges for commercial vehicles that carry passengers and Class B and C licences. I also proposed to remove the so-called Transport Licensing Board (TLB) licences for vehicles that carry goods, so that people whose vehicles are only used for purposes of carrying goods, do not need to find time to look for the TLB licences, in order to be allowed to carry goods, whereas, there is no threat to members of the public. We will limit that, purely, for purposes of regulation of passengers. Mr. Temporary Deputy Chairman, Sir, these measures, again, are expected to reduce the cost of doing business and encourage the expansion of economic activities, especially, in the transport sector. From the initial feedback that we are receiving, we know that the measures are being well-received. They have already started translating into cost reductions on transport. Mr. Temporary Deputy Chairman, Sir, again, in order to encourage the strengthening of our financial system, including, merging of all the small commercial banks--- There are 43 commercial banks in the country. To encourage them to merge into strong financial institutions, which is required for an economy that is growing, I have proposed to increase the minimum capital for the banks from the current Kshs250 million to Kshs1 billion, to be paid over three years. The initial reaction that we are receiving about this measure is that the banks themselves are saying: \"Why did you not even proposed Kshs3 billion, because Kshs1 billion is still too little?\" The demand for money is so high. Indeed, the bank owners do believe that even the minimum capital of Kshs1 billion is still little! Mr. Temporary Deputy Chairman, Sir, there is a correlation between a growing economy and a stable financial system which will come up with the strong banks. There is need to have a very strong back-up insurance sector. Right now, we are seeing people walking into the banks and coming out with unsecured loans. Therefore, it is only a stable insurance sector that will secure these loans. We do not what to see a situation whereby these loans are passed on to the future generations or people ending up with their houses being auctioned because of mishaps happening to them. As we increase the strength of the financial sector, then it becomes extremely important to also strengthen the insurance sector. After wide consultations, even with the insurance sector itself, we did agree that, perhaps, we needed to triple the capital requirements as they are. The capital base will range, say, from Kshs50 million to Kshs150 million, Kshs100 million to Kshs300 million and what is Kshs150 million will be Kshs450 million. 2134 PARLIAMENTARY DEBATES June 28, 2007 Mr. Temporary Deputy Chairman, Sir, we have also been very generous in terms of giving the banks and insurance companies three years to comply with this new capital requirement. However, the good news is that when you look at the banking sector in this country, probably over 80 per cent of our banks are already having capital over and above Kshs700 million. Therefore, within the first year they should have complied with the Kshs1 billion requirement. The few ones have already started getting into negotiations to merge. This is very good news for us. Hon. Members may recall that this House passed on the responsibility of oversight from the Treasury to the Central Bank of Kenya (CBK) in terms of licensing and supervising of banks. The CBK can only supervise so many units and give them quality time. We do believe that if we spread ourselves too thin, we will end up with sacrificing the quality of the supervision, which is not good for the stability of the financial system in the long term. By having a few banks, I see a position where at some point, in future, our 43 banks will, probably have reduced to between ten to 15 commercial banks. Mr. Temporary Deputy Speaker, Sir, again, on insurance companies, we have moved from 40 to not more than 20 companies. We can have solid insurance companies with many branches and presence across the entire country and none of them being under threat of ever falling. Mr. Temporary Deputy Chairman, Sir, the tax proposals we included in the Financial Statement, again, are intended for debate here. We expect to get the necessary feedback from the hon. Members. We will be looking at them, again, in detail in the Committee Stage. We will also be looking at them when we present them by way of the Finance Bill which will be debated here. We will go through them clause by clause. I believe what we are seeking today is further enrichment of the process by way of debating these proposals. By the time we come to discuss the Finance Bill, the House will have given its input which will be synthesised in the Committee Stage. Therefore, by the time we then pass the Bill, it is with a broad consensus of the House in terms of agreeing with us on the tax proposals that we need. Mr. Temporary Deputy Chairman, Sir, what I need to reiterate is that these measures have been brought together through a huge consultative process that began last year. Various stakeholders came to us and basically requested us to look at \"a\", \"b\", \"c\" and \"d\". We looked through their angles and came up with what I call the best feet within the circumstances of looking at the wider picture of where our country wants to go within the framework of the Vision 2030. We want to convert this country from a low-income country to a middle-income country. We are already getting there. As I said, at the end of the incoming financial year, we will be looking at a Gross Domestic Product (GDP) of not less than Kshs2.05 trillion which, again, translates to just about US$820 or US$840 per capita GDP in terms of nominal GDP. The miraculous number we are looking for is by the year 2030 to have really built up that GDP per capita to not less than US$4,000 per person which will move Kenya to a higher level within the middle-income countries. The measures we have put here is part of preparing that pathway towards our journey to prosperity from poverty. I would like the House to debate these measures within that framework in terms of facilitating the country to move forward. We do not want to go back to recovery since we have recovered. We want now to start moving forward. The plane has taken off and what we need is to sustain it in the air for the benefit of our future and that of our children. Mr. Temporary Deputy Chairman, Sir, I could go on and on, but I would like to give hon. Members time to air their views on these tax proposals. I would also like to listen to their input, so that, by the time we get to discuss the same in the Finance Committee, we will also have heard the input from the hon. Members. I know some of the hon. Members may have discussed this as they discussed the Budget Speech in the Committee of Supply. However, it does not do any harm to repeat the same because we will be here to listen to their contributions on these specific tax measures and take necessary action. June 28, 2007 PARLIAMENTARY DEBATES 2135 Mr. Temporary Deputy Chairman, Sir, I, therefore, would wish to then appeal to all the hon. Members again to support these proposals. Let us work together for the benefit of this nation. Let us work together knowing that it is only through ourselves and through these tax measures that we will liberate ourselves from over-dependence on our foreign partners. We would like to see them coming to us because they have seen we have done our bit rather than because we are desperate. I believe that Kenya has set the pace in Africa as, probably, one of the very few countries where the total grant component of our Budget is less than 5 per cent of the total expenditure. We are going to maintain this trend. I hope, in future, we will move from even receiving the grant to giving the grant to some countries within our neighbourhood. Mr. Temporary Deputy Chairman, Sir, with those remarks, I beg to move and request the Minister for Energy, Mr. Kiraitu Murungi, to second."
}