Monday, October 8, 2012

How Kenyans will pay for MPs’ secret payrise



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Already, Kenyans are faced with a dizzying array of taxes: the Kenya Revenue Authority has even gone after athletes in an effort to collect a proportion of their earnings abroad, even though the money is taxed at source. Photo/File
Already, Kenyans are faced with a dizzying array of taxes: the Kenya Revenue Authority has even gone after athletes in an effort to collect a proportion of their earnings abroad, even though the money is taxed at source. Photo/File/  Nation Media Group
By MUTHOKI MUMO mumumo@ke.nationmedia.com
Posted  Monday, October 8  2012 at  23:39
IN SUMMARY
  • The Treasury responded to demands by teachers for higher pay and the secret Sh2 billion goodbye package for MPs by slapping a 10 per cent excise duty on fees charged for mobile money transfers and all financial services.
  • The intention is to raise Sh40 billion to cover the pay rises but the effect is that you will be taxed for spending, managing or investing your money.
  • Interestingly, this is being done not to raise money to invest in the economy, buy medicines for hospitals or feed the poor, but to indulge the appetite for higher pay in the public sector.
  • Analysts say the new tax, expected to net the government at least Sh4.5 billion, will affect everything from cheque processing fees, loan application fees, ATM charges to charges paid to stockbrokers to buy shares on your behalf.
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Kenyans will pay tax to cash a cheque at the bank, use an ATM or surf the Internet in a new round of taxes to raise cash for public sector pay rises, including the secret deal for MPs.
You will now be charged a tax for sending or receiving money on your cellphone. You will also be taxed when you withdraw money from your account, apply for a loan or do business at the Nairobi Securities Exchange.
The Treasury responded to demands by teachers for higher pay and the secret Sh2 billion goodbye package for MPs by slapping a 10 per cent excise duty on fees charged for mobile money transfers and all financial services.
The intention is to raise Sh40 billion to cover the pay rises but the effect is that you will be taxed for spending, managing or investing your money. (READ: Treasury seeks to raise Sh40 billion in new tax measures)
Already, Kenyans are faced with a dizzying array of taxes: the Kenya Revenue Authority has even gone after athletes in an effort to collect a proportion of their earnings abroad, even though the money is taxed at source.
Interestingly, this is being done not to raise money to invest in the economy, buy medicines for hospitals or feed the poor, but to indulge the appetite for higher pay in the public sector.
The government already spends 60 per cent of its budget on recurrent expenditure, the bulk of which is salaries.
“Excise duty is a little bit like value added tax (VAT) in that the recipient of the service or good often bears the burden,” said Mr Nikhil Hira, a partner and tax expert at Deloitte Kenya.
Analysts say the new tax, expected to net the government at least Sh4.5 billion, will affect everything from cheque processing fees, loan application fees, ATM charges to charges paid to stockbrokers to buy shares on your behalf.
“Our understanding is that duty will be paid on whatever fees a financial institution charges consumers for services rendered,” added Mr Hira. The tax is also imposed on other fees charged by financial institutions.
“This will increase the cost of financial services. It will also reduce accessibility. It might reverse a lot of gains made in the last couple of years,” said NIC Bank director of finance and strategies Joe Mutugu.
These institutions include insurance firms and stockbrokers.  However, bank customers are most likely to bear the brunt of these new taxation measures given the frequency of their transactions.
While most banks are still assessing the situation and strategising on the way forward, some banks surveyed by the Daily Nation on Monday confirmed Mr Hira’s sentiments.
“Normally, we do not absorb these kinds of costs. This is basically a levy on the customers. The bank truly has nothing to do with it,” said Consolidated Bank CEO Ndegwa Wachira.
Even on mobile money, it seems, the consumers will not be spared. yuMobile on Monday said consumers stand to suffer.
“Consumers will be worst hit. From yuMobile’s platform—yuCash—we will be unable to offer affordable mobile money services,” said a statement from the firm.
Telkom Orange, Safaricom and Airtel have said that they are yet to assess the full impact of the new taxation measures and to develop mitigation strategies.

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