Battle over Finance Bill heads to court as banks brace for interest rates caps

A row between the Kenyan parliament and the executive over the passage of the Finance Bill could be headed for the courts this week.

Meanwhile, the Treasury is grappling with the implications of the standoff, which threatens to undermine government finances in the next six months and hurt the profitability of commercial banks.

Finance Minister Uhuru Kenyatta is said to be quietly trying to come to a deal with MPs over a possible enactment of the Finance Bill in the next two weeks.

But Gem MP Jakoyo Midiwo told The EastAfrican he was planning to move to court this week to compel Treasury to table the legislation before parliament.

Under the new legal regime, parliament has taken on nearly all budget-making powers, becoming the principal determinant of sources of government revenues — including borrowing — and how ordinary Kenyans and businesses will be taxed, a role that has traditionally been left in the hands of Treasury.

The Finance Bill — which legalises taxation measures proposed during the last budget — was supposed to be enacted by December 31, 2011 but a standoff between Mr Kenyatta and a section of MPs seeking amendments to the law has thwarted its passage.

The issue was complicated by a bid by Mr Midiwo to introduce amendments to the legislation that would see the Treasury introduce interest rates caps for banks.

The Treasury has consequently delayed tabling the Finance Bill before parliament for debate fearing MPs would introduce the far-reaching amendments.

“We want the court to interpret the law on whether parliament has the powers to withhold a Bill from parliamentary debate,” said Mr Midiwo.

Analysts said if the Finance Bill is not enacted into law, the government could be forced to refund taxes and duties collected after the expiry of the Provisional Collection of Taxes Order 2011, for the period January to June 2012 – which could cost the Treasury Ksh3 billion ($32.5 million).

The House is set to resume sitting in February after it broke off for the Christmas vacation at the end of December, meaning the law could take still longer to enact.
The delay could also deny Treasury a sizeable chunk of tax revenue it had planned to collect in the current fiscal year through new taxation measures. 

This would affect the rolling out of key infrastructure projects as well as spending on social welfare projects such as the free primary education.

The taxman had hoped to collect millions of dollars in excise taxes in measures announced in June last year.

“This is a serious situation. The revenues envisaged under the Finance Act are key to the running of government operations,” said Dr Mbui Wagacha, an economist in Nairobi. “There is not much room for increasing taxes, therefore what was proposed in the Finance Act is very essential.” The 2011 budget was rich in social interventions that the government hopes should improve the quality of life for citizens and address supply shortages that have seen inflation rise to nearly 20 per cent last year.

Rangwe legislator, Martin Ogindo had also introduced a Bill seeking to control interest rates, pegging them at four percentage points above the central bank rate (CBR) while setting the minimum interest rate on deposits at 70 per cent of the CBR.