By Joackim Sakwa
Prime Cabinet Secretary Musalia Mudavadi was yesterday taken to task by the accountant professionals who demanded to know how the government is addressing the high cost of living, and high proposed taxes in the finance bill 2023.
The Institute of Certified Public Accountants of Kenya (ICPAK) said they were among Kenyans who were feeling the heat burden of the high cost of living and over-taxation by the current regime.
However, Mudavadi who was opening ICPAK 40th Annual Seminar at Mombasa said it will take two years of economic rehabilitation for the nation to get out of the economic recession.
“There is no room to lie to Kenyans. I agree the tax levels are painful but where are the easy options? To run you must have a budget and we must raise revenue. It will take at least two to three years of rehabilitation for the economy to get out of the woods. Things went bad before Kenya Kwanza came in and the situation is still bad,” said Mudavadi.
He said as politicians hard decisions are made in the first years because it will be hard to make the hard economic decisions when it is near elections.
“So when the elections have approached and the economy has improved, we can throw in sweeteners,” said Mudavadi
He said there has been a misconception that affordable housing’s three percent savings levy is a tax.
“I confirm the levy is not a tax but a contributory investment. Three, I confirm that the contribution is a savings plan deduction with benefits accruing to the employee,” said Mudavadi.
He said the benefits include home ownership, transferring contributions to a retirement scheme or converting to pension, to spouse or dependents.
“Besides enhancing the national saving plan, all contributions made by employees into the fund shall also get returns based on the return on the Fund, and the contributor will receive back all the contributions made, in cash,” said Mudavadi.
He said the public debt ceiling is sh.10 trillion which means the government has legroom to borrow only sh600 billion and no more, hence it will result in delays in remittance to county governments and paying of salaries.
“The shilling has depreciated. How much can you borrow internally? It will hurt us for two to three years but we shall get out of it,” said Mudavadi.
He said the five percent withholding tax is a proposal that is open to discussions and reviews.
“Let us remember the finance bills are proposals and we are open to views and some adjustments can be made to navigate in this hard financial time. If you want us to cede some taxes, gives an option otherwise the deficit will be unmanageable,” said Mudavadi.
He said Mudavadi said there are 79 state commercial agencies which are commercial but unfortunately, only five percent pay dividends, while 40 percent turn to the exchequer for funding.
He said there are 348 state enterprises despite recommendations to trim the same to 150 as most of the agencies do duplicity of functions which raises the wage burden.
“We will be making hard decisions to reduce nonperforming state corporations.
The Prime CS said a few years ago Abdi Kadir made a recommendation to shrink the 331 state corporations to 150 but unfortunately, they increased to 348.
“There are a lot of surgeries to be done because these state corporations most of them do duties that can be done by few agencies. It is populist’s politics in some of these enterprises and it has been undermining the process, but tough decisions shall be made, and we seek your support to achieve the same. I will pronounce myself systematically as we go ahead,” said Mudavadi.
He urged the accountants and other professionals to move away from the famous quote Waziri amesema (the minister has said).
“You know what the law says and what is required of you, but you hide behind the phrase Waziri amesema. Such phrases lead to high levels of unaccountability that have seen most of the agencies defaulting on statutory deductions and loans to banks hence massive resource leakages caused by corruption.,” said Mudavadi.
He said in the finance bill there is a plan to move towards supporting local furniture manufacturing as opposed to importing to promote local industry.
“The Treasury has made proposals that are supposed to start manufacturing of furniture because even those flashy imported ones do not stand the test of time and that will help the manufacturing industry,” said Mudavadi.
While addressing the 16 percent VAT on fuel, he said that the government seeks to raise between 50 to 60 billion within months and there is no available option.
He said the fuel subsidy was costing sh.16 to sh.20 billion per month depending on the exchange rate when the consignment was coming in.
“Who was paying that subsidy? We were cheating ourselves and it is manifesting itself and now there is nowhere to hide. One of the things we did was to remove it and now we have a twin problem with the shilling taking a beating,” said Mudavadi.
“Where else will we get the funds? the legroom of borrowing is seriously constrained. It was 16 percent initially and now with the current deficit, it will be worsened if we don’t make tough decisions,” said Mudavadi.
He said that Kenya’s tax debt portfolio stands at sh.1.5 trillion, which is basically an unpaid tax.
He said Kenya Revenue Authority KRA is looking for the debt which mostly is tied in tribunals courts and other private organizations.
“We want roads, medicine, education, and bring universal health care. The 20 percent is meant to mitigate and avoid court processes. Some are using court process not to pay tax,” said Mudavadi.
Mudavadi said he has drawn a line for public officers on matters of accountability because procurement is a very critical function in the success of Government business. After all, about 60 percent of the budget is on procurement.
He said the government has shifted its subsidy policy from consumption to production hence the few beneficiaries on the consumption side are crying out loud.
“Through the Finance Bill, 2023, the government proposes to provide exemptions under the VAT Act for fertilizers and inputs or raw materials locally purchased or imported by manufacturers of fertilizers. This shall lower the cost of fertilizer, which will in turn lower the cost of production for farmers,” said Mudavadi.
He said agricultural pest control products, raw materials for the manufacture of fertilizers, and transport of sugar cane to millers, have been VAT exempted to promote agriculture and enhance food security.
The Prime CS said through the Finance Bill, they have allowed for the zero-rating of the supply of maize, cassava, wheat, or meslin and maize flour containing cassava flour under the VAT Act,
He said the zero rating will allow Kenyans to access Unga at affordable prices.
“To spur manufacturing, the government is proposing a reduction of Import Declaration Fee (IDF) from 3.5 percent to 2.5 percent and has removed the 1.5 percent IDF rate for affordable housing,” said Mudavadi.
He said they have also introduced an Export and Investment Promotion Levy to boost local manufacturing.
Mudavadi said the Railway Development Levy (RDL) is proposed to move down from 2.5 percent to 1.5 percent.
He said an Original Equipment Manufacturer (OEM) operating in Kenya will enjoy a 15 percent Corporate Income Tax on parts designed and manufactured in Kenya.
“This will allow local manufacturing of genuine parts that will increase the lifespan of vehicles and machines,” said Mudavadi.
ICPAK Chair George Mokua said it is sad that Kenya’s public and private sectors are failing to take advantage of the core competencies of professional accountants.
He said weak corporate governance sits behind many of the failures in financial reporting which have seen some of Kenya’s largest companies experience financial difficulty.
“A contributory factor in this crisis has been the use of poorly skilled bookkeepers and unqualified “accountants” in roles that should be reserved for professional accountants,” said Mokua.