NCCK Memorandum on the Finance Bill 2024

MEMORANDUM BY THE NATIONAL COUNCIL OF CHURCHES OF KENYA TO THE NATIONAL ASSEMBLY FINANCE AND PLANNING COMMITTEE ON THE FINANCE BILL 2024

JUNE 10, 2024

Samuel Njoroge

Clerk of the National Assembly

P. O. Box 41842, 00100

NAIROBI

1. Preamble

Honourable Chair,

The National Council of Churches of Kenya (NCCK) is a family of Christian Churches and Communions that was established in June 1913. The NCCK is therefore the oldest and largest Christian Churches umbrella body in the country. Being a membership organization, the NCCK does through the member churches and organisations have a presence in all the Counties. This is through Ward Committee, County Coordinating Committee, Regional Committee (a region combines 4 – 6 counties), and at the national level. All the officials are elected by the members of NCCK at that level.

The Council endeavours to fulfill the Vision “One Church; United in Faith and Mission witnessing to Jesus Christ and Transforming lives”, being guided by the Mission: “Holistic transformation of lives for a just, resilient and sustainable society”.

The 2019 Census indicated that more than 15,777,000 Kenyans are members of protestant churches, most of which are members of NCCK.

Over the last two months, we have had forums with representatives from 44 counties across the country during which the Finance Bill 2024 was extensively discussed. This memorandum is therefore a summation of the preferences and input from the counties.

2. Background

The Public Finance Management Act provides that each year the Cabinet Secretary responsible for Treasury shall prepare and submit to Parliament a Finance Bill that sets out the revenue raising measures for the national government. The same Act in Article 40(5)(e) provides that the recommendations adopted by the National Assembly on the Fnance Bill shall “consider the impact on development, investment, employment and economic growth”.

We therefore commend the National Assembly f or facilitating public participation so that Kenyans, who are to be affected the most by the provisions of the Finance Bill.

Contextually, the Finance Bill 2024 has been developed a time when Kenyans individually are struggling to survive the harsh economic reality after the devastation of Covid-19 and subsequent drought. The trend of job losses, dwindling profitability, business shutdowns and low agricultural productivity continues to date. This has precipitated a widespread sense of helplessness and discouragement among the citizens.

The widely reported steady exodus of multi-national and locally owned large businesses from the country is worsening the economic status of the nation. Not only are jobs being lost, but the ecosystems built around these businesses are collapsing, sending multitudes back to square one.

The anticipation and aspiration of Kenyans is that the government would put in place an economic recovery, business growth and industrialization supporting tax and policy regime.

As such, Kenyans approached the Finance Bill 2024 expecting hope for a better future, but were shocked to find a raft of new and increased taxes, yet without support measures to enhance their income generation. The provisions in the Finance Bill 2024 are bound to further retard economic growth and impoverish Kenyans who will have to spend more on taxes without a requisite increase in income. If the Bill is not amended, it will indeed consign Kenyans to be in the same unfortunate situation as the residents of Jerusalem, as we read in Nehemiah 5: 4

Still others were saying, “We have had to borrow money to pay the king’s tax on our fields and vineyards”.

3. Principles of Taxation

In section 1.5, the National Taxation Policy (2022) provides the Guiding Principles of Taxation. Of these, we take note of subsections five and six:

(v) Sustainability: the tax system shall attract minimal changes over time, be coherent with other Government policies and support sustainable economic development.

(vi) Economic growth and efficiency: the tax system shall mitigate against distortions and expand the productive capacity of the economy.

These provisions align to the universal principle that the government taxes incomes, not expenses, and tax levels are premised on the ability to pay. It is therefore inimical to find that the tax measures outlined in the Finance Bill 2024 are primarily focused on increasing revenue without attendant consideration of the payers’ ability to pay.

While being mindful of the government’s need to generate revenue to fund operations and essential services, we recommend the following amendments to the Finance Bill 2024 before it is passed by the National Assembly.

No	Provision	Description of the Clause	Proposal	Rationale
	9	Insertion of Clause 12H in the Income Tax Act to introduce Motor Vehicle Tax	Delete the provision in its entirety	The proposed tax offends the principles of taxation in that: It is double taxation, considering that the vehicle was paid for tax at purchase, and attracts operational taxes through fuel, services, and other consumablesIt is a taxation of expense, since owning a motor vehicle does not generate incomeIt will hinder further penetration of insurance by making acquisition expensiveIt will lead to increase in transport of goods and people, which offends rather than enhancing economic growthIt will increase poverty by forcing Kenyans to spend more when using public transport
	45	Insertion of Clause 7B in the Miscellaneous Fees and Levies Act to introduce the Eco Levy	Delete the provision in its entirety	The Eco Levy should not be introduced: It indiscriminately targets all products, thereby penalizing goods that do not have a negative impact on the environmentIt will be double taxation since Kenyans already pay Carbon Tax through the excise duty on fuelIt will raise the cost of doing business in Kenya, leading to reduced operations and thus less tax in short and medium termIt will unduly increase cost of living since every day consumption items such as mobile phones will cost more to purchase
	61	Insertion of paragraph 16 in the First Schedule of the Tax Procedures Act to impose Affordable Housing Levy on employees working remotely for Kenyan employers	Delete the provision	The entirety of the Affordable Housing Levy should be scrapped
	63	Amending of Section 51(C) of the Data Protection Act to allow disclosure of personal data for tax purposes	Delete the provision	The proposed amendment offends Article 24 of the Constitution of Kenya which guarantees the right to privacy. This would amount to amendment of the Constitution through legislation, making the amendment null and void. Further, the provision would be prone to abuse and unequal treatment of tax payers. The proposal negates the safeguards provided for in the Data Protection Act.
	2(k)	Amends Section 2 of the Income Tax Act by changing the definition of “royalty”	Delete item (b)	Purchase of licensed software does not include acquisition of full ownership rights to the software, and as such the purchaser or reseller cannot be considered to have obtained a royalty. The buyer or reseller may make or receive payments for the software, but cannot commercially exploit it. The proposal goes against the best practices espoused by the Organization for Economic Co-operation and Development Model Tax Convention on Income and on Capital.
	5	Amendment of Income Tax Act to insert a new clause 4C	Amend the provision to exempt procurement sourced from women, youth and persons with disabilities groups that are targeted for special consideration	The vulnerable groups have defined quotas for provision of services and goods to national and county governments. Exempting them from the tax will continue to incentivize their economic empowerment.
	34 (a)(i)(A)(Ac) and 34 (a)(i)(A)(Ad)	Amendment of First Schedule of VAT Act to subject Gluten Bread and Unleavened Bread to VAT	Delete the provisions	Bread is a staple food in the country, especially for low income earners. The taxation will raise cost of living with devastating impact on the economic welfare of the citizens.
	35	Amendment of First Schedule of VAT Act to subject Plant, Machinery and equipment used in construction of plastic recycling plants to VAT	Delete the provisions	Recycling plastics is a key element in environmental stewardship, and removal of the VAT exemption will hinder new entrants as well as expansion of existing plants, which will have major ramifications.
	35	Amendment of First Schedule of VAT Act to subject Financial Services to VAT	Delete the provisions	Accessibility and affordability of financial services has buttressed the economic development witnessed in the last two decades. Increase in cost of financial services on account of the proposed taxation will reverse this trajectory, consigning many Kenyans to poverty.
	35	Amendment of First Schedule of VAT Act to subject internet and data services to VAT	Delete the provisions	The highly publicized move by government to promote digital economy to create employment for the youth has been pegged on the affordability of internet connectivity. This will be curtailed if the costs are increased, which means the youth will not contribute tax revenue.
	?????	??? what’s amended to introduce tax on battteries?	Delete the provisions	The proposed amendment is counter-productive in consideration that: Batteries are a critical component in promoting green energy as well as existing devices. The proposed taxation would hinder the nascent solar energy industry in the country.The price of virtually all electronic devices that have batteries will go up, negatively affecting the national economy/ Overall tax revenue will reduce as purchasing power of the people is reduced.
	???	??? what’s the amendment that increases tax on mobile funds transfers?	Delete the provisions	The financial services penetration driven by mobile funds transfers in Kenya is unparalleled. Increasing the cost of mobile transfers will hinder this progression, which will push the people backwards to a cash economy with the attendant volatility.

4. Conclusion

In conclusion, the NCCK urges the National Assembly to listen to the cry and plea of Kenyans and radically amend the Finance Bill 2024 to avoid imposing a greater taxation burden on the people of Kenya. Let the Finance Bill 2024 be a document that inspires hope and confidence for the future, not one that breeds despair in the hearts of the people.

On our part, we remain committed to supporting and working for the economic empowerment of individuals and communities, knowing that the beneficiaries grow to become tax payers. It is for this reason that our theme for the next five years is Dignified Livelihoods: Resilient Communities (Galatians 6: 9).

Signed on this 10^th day of June 2024 at Jumuia Place.

Rev Canon Chris Kinyanjui

GENERAL SECRETARY