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Kenya's proposed tax hike raises concerns among East African traders

Trucks waiting clearance to enter Uganda from Malaba, at the border with Kenya. PHOTO | FILE
  • Kenya's proposed Finance Bill 2023 sparks concerns among carriers in the East African Community. 
  • The proposed law suggests raising the advance tax on trucks to Ksh3,000 ($21.91) per tonne of load capacity per year or Ksh5,000 ($36.52) per year for trucks, along with a potential increase in VAT and fuel prices. 
  • Transporters in East Africa oppose the tax hike and recommend abolishing the advance tax.

Even as partner nations prepared to get together on Friday to debate the budgets, a proposal by Kenya to raise tax on trucks and trailers under the country's Finance Bill 2023 has alarmed carriers within the East African Community.

The law would change the advance tax that must be paid on both passenger and commercial vehicles—but not on agricultural tractors or trailers. Beginning in January 2024, it suggests raising the advance tax to Ksh3,000 ($21.91) per tonne of load capacity per year or Ksh5,000 ($36.52) per year for trucks.

The advance tax on commercial cars has increased, which raises operating expenses. Finance ministers from all EAC partner nations were pledged to review the Bill, according to Kenya's EAC Cabinet Secretary Rebecca Miano.

“Let’s hold our horses, as I understand this is going on across the borders; everybody is preparing a budget. EAC Finance ministers meet on Friday. You will have an idea on how these taxes are going to impact the rest of the region,” said Miano.

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As the proposed law suggests raising the VAT from 8.0% to 16%, travelers from East Africa and Kenya would also have to deal with increased fuel prices.

“We would like to express strong opposition to the increase in advance tax on trucks and trailers,” said Newton Wang’oo, chairman of the Kenya Transport Association.

“As much as advance tax is treated as a tax credit, the proposed increase in advance tax would have a huge adverse impact on the cash flows of transport companies, which are already struggling due to the high cost of fuel and maintenance.”

The transporters, whose trucks travel the Northern Corridor to neighboring countries including South Sudan, Rwanda, Uganda, and the Democratic Republic of the Congo, have recommended eliminating the advance fee, claiming that doing so won't reduce government income.

“Transport companies pay installment taxes just like other taxpayers in other sectors of the economy,” said Wang’oo.

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With Kenya Revenue Authority embracing technology and advanced systems, we propose that advance tax should actually be abolished as there are many other ways to ensure all transporters are in the tax net and, therefore, the government loses no revenue by removing advance tax,” he added.

The National Housing Development Fund's mandated contribution will have an impact on Kenyans as well. The fund suggests implementing a three percent employee deduction for the program supporting affordable housing. Employee donations are intended to be matched by employers.

The impact on employees will be significant when combined with the proposed changes to NHIF and the recent adjustments to national pension contributions, particularly at a time when many are already struggling with the high cost of living.

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