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{
"id": 237438,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/237438/?format=api",
"text_counter": 155,
"type": "speech",
"speaker_name": "Mr. Kimunya",
"speaker_title": "The Minister for Finance",
"speaker": {
"id": 174,
"legal_name": "Amos Muhinga Kimunya",
"slug": "amos-kimunya"
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"content": "Mr. Temporary Deputy Speaker, Sir, when presenting the Budget Speech for this year, I had proposed to raise the bank guarantee payable by insurance brokers from Kshs1 million to Kshs5 million. I had also proposed to require that, that guarantee be deposited with the Central Bank of Kenya (CBK). Those measures were aimed at encouraging only genuine brokers to transact business in the insurance industry. However, subsequent to consultations, it has come to my knowledge that increasing the guarantee fees to Kshs5 million will not only be quite substantial to the brokerage industry, but will also substantially tie up funds with the CBK. I am also encouraged by the compliance with the cash and carry and, perhaps, we do not need as much money being tied up as guarantee by the insurance brokers. It emerges that requiring guarantee to be operated by the CBK will require brokers to maintain an account with the CBK. I, therefore, propose to lower the guarantee fees from Kshs5 million to Kshs3 million. The guarantee will, however, be deposited with the commercial banks as was the case before. Mr. Temporary Deputy Speaker, Sir, in order to support the Jua Kali sector, I will also be proposing an amendment to the Finance Bill to zero-rate welding machines and locally assembled water pumps which were not included in the budget earlier this year. Mr. Temporary Deputy Speaker, Sir, a lot needs to be done to enable our country reap the full benefits of Information Communication Technology (ICT). In that regard and, in order to facilitate fast growth of that sector, create employment opportunities for our youth and make our country a regional leader in ICT, I did propose to remove the VAT on computer equipment, computer parts and accessories. Mr. Temporary Deputy Speaker, Sir, we also know that young parents do incur a significant proportion of their income on child care and upbringing expenses, and to ease the family burden of raising children, I proposed, during by Budget Speech, to zero-rate baby diapers, napkins and feeding bottles. I am encouraged that traders have responded by reducing the prices on those items. In order to enhance the contribution to the Exchequer by the well-to-do drinkers in the society, I proposed a modest increase of Excise Tax per bottle of beer at Kshs3. On the other hand, to make some beer products affordable to the poor and, hence, stop them from resorting to dangerous and illicit drinks, I proposed to remove Excise Tax on un-malted beer sold in keg. Those two measures have gone a long way to ensure equity. The rich now contribute more towards financing our development priorities compared to the poor, while they enjoy their drinks. The taxation of wine products has been complicated, leading to low compliance. To simplify and enhance compliance with the taxation of the said products, I proposed to increase the Excise Duty on wines from 45 per cent to a hybrid rate of Kshs54 per litre or 65 per cent, whichever is higher. Similarly, to improve the compliance of Excise Tax lost under the spirit industry and to ensure equity in our tax system, I proposed to increase Excise Tax on spirits from Kshs100 per proof-litre or 65 per cent to Kshs120 per proof-litre, whichever is higher. Those measures have now created a level playing ground for the alcoholic beverage industry by having all wines and spirits taxed at the same maximum rate of 65 per cent. Mr. Temporary Deputy Speaker, Sir, some cigarette smokers incur less cost to enjoy their puff. In order to address that inequity among the cigarette smokers and raise more revenue, I propose to increase the Excise Tax on Category B and D by 10 per cent to Kshs780, Kshs1,690 per mill, respectively. Mr. Temporary Deputy Speaker, Sir, some sub-sectors of our economy have been enjoying their earnings for long without contributing to the needy Exchequer. In order to ensure equity in our tax system and to make those who derive income from capital gains contribute to the Exchequer, I proposed to lift the suspension and introduce the taxation for capital gains and transfer of properties, vehicles and marketable securities. I am aware that this has generated a lot of debate and I would like to urge this House to remember that we are here looking at the profits that have been October 31, 2006 PARLIAMENTARY DEBATES 3243 made by people selling properties that have appreciated in value from the time it was bought to the time it was sold. I would like us to remember that the people who are buying and selling properties are the people who enjoy the upper levels of income; the rich in this country and not the poor. As we tax the poor people when they are buying a bag of beans or a cow and selling them to make a profit, I think we should consider the inequality in incomes and ask that the people who are benefitting from sale of property pay tax so that we can use that money to uplift the poor people who are suffering from poverty in our country. I would like to urge this House to bear that in mind, as we discuss this Bill. Since 1985, when the capital gains regulations was suspended, the property market has had 20 years to recover. We have seen tremendous growth coming out of them. It is perhaps time we introduced the capital gain tax, see how it works as we ensure that more people are contributing to the Exchequer from the gains they are getting. We can then review it in the future to see if we need to relax or amend it. We have realised the need to own property to improve the living standards of our people through mobilisation of personal savings. In this regard, I proposed to exempt from the income tax the interest earned on deposits of up to Kshs3 million by a depositor who uses the plan for the first time, for purposes of owning a permanent House. These measures need to be looked at in terms of what we are taxing some and giving incentives to others so that we promote ownership of property rather than trading in property. The private sector, worldwide, has been recognised as the engine of growth. In furtherance of the private public sector partnership in development expenditure, I propose to make the cost of construction of a public school, hospital, road or similar kind of public project to become income tax deductible, when such expenditure is incurred, with prior approval of the Minister of Finance. To further promote the private sector participation in the rehabilitation and maintenance of our infrastructure, I proposed to exempt from Income Tax, the interest income earned by investors who buy listed bonds and assets with bank securities, as well as special purpose vehicles created for the purpose of redeeming the bonds on its maturity, provided the securities are for the purpose of developing the infrastructure. When presenting my Budget Speech for this year, I also proposed, to introduce withholding tax of 15 per cent on payments made on finance leases. This is important for the House. When we looked at that rate, we thought it was too high and might result in net refunds, thus creating administrative difficulties for the tax authority. I, therefore, propose to reduce the rate from 15 per cent to 3 per cent to the lessor. In terms of motor vehicle insurance, we have, for a long time, been experiencing problems which emanate from insurance brokers who hold premiums collected on behalf of insurance companies 60 days, while the the insurer is expected to assume the risk immediately - the premium is paid to the brokers. To address this and reduce the cost to the industry, I proposed to amend the Insurance Act to provide that in respect of motor vehicle and fire insurance business, the broker should remit the premium at the time the cover is provided. This cash and carry measure has improved, not only the liquidity of the insurance companies, but has also minimised risk and the cost of doing business for the insured. In pursuit of more jobs in the insurance industry, and for the many talented school and college leavers, I proposed to amend the Insurance Act to remove the restriction on insurance agents to act for a maximum of three insurers. This is consistent with a liberalised economy. I know that there has been a lot of debate about this issue. Some people have been saying that we are opening up the market. However, I need to assure this House, that the responsibility of appointing an insurance agent still remains with the underwriter. It is the underwriters who will appoint the agents they believe can represent them best. It is not just anyone who wakes up in the morning and calls themselves an agent who will be licensed. They will need to provide evidence to the Commissioner of Insurance that they have been appointed by an underwriter and authorised to carry out business, for them to be registered. I believe that the misunderstandings which have been there have been clarified. We have had discussions with the industry. I urge hon. Members to take 3244 PARLIAMENTARY DEBATES October 31, 2006 it in good faith; that, this was to open up the space and not to offer any advantage or disadvantage to any one person. We are all aware that competition in our banking sector has not been high enough to lower the interest rates. To promote a healthy competition in this important industry, we believe there is need to allow for a more differentiated array of banking products and services. In addition, our Muslim colleagues cannot participate in conventional banking system without violating their deeply held principles of their faith. To address these shortcomings, I propose to amend the Banking Act to allow for the introduction of new banking products, subject to the approval by the Minister for Finance. Here, we are thinking of Islamic Banking and the introduction of all other products that are currently forbidden by the current Banking Act. This, I believe, will create competition in the Banking Sector and lower our lending rates. This Bill has been with us since 15th June. Hon. Members and members of the public have had the opportunity to look at it. They made their representations to the Treasury and to the Committee on Finance, Planning and Trade. I also had the opportunity to discuss the issues with the Committee; a very productive discussion, I must add. I believe that we could discuss and have this Bill moving to the Committee Stage so that we can bring in the necessary amendments and pass them, so that we can give Kenyans the law they need to have business certainty in terms of knowing the rates that will apply between now and next year. Right now, we are in a situation where people do not know whether this Bill will be passed or not. The faster we do it, the better for our economy. As I indicated, the issues which have been of concern like the Sugar Development Levy, insurance brokerage, fishing community, dairy refrigeration equipment and jua kali welding equipment which had been left out has all been taken into account and factored in. I hope that we will fast-track this process so that we move into the Committee Stage, make this Bill into law and create a good environment that we need for this economy to grow even further. As I said, this is a straightforward Bill. I look forward to the House giving us the necessary support we need so that we go through the Bill as fast as possible. I beg to move and ask hon. Mungatana to second the Bill."
}