The private sector in East Africa has added its voice to the debate on the un-harmonised proposed tax increments in partner states ahead of the reading of the financial year 2023/24 budgets.
Most of the taxes have not been harmonised across the region thereby likely to lead to a high cost of doing business.
Of those proposed in the Kenya, Uganda, Tanzania and Rwanda budgets, the only one that has been harmonised is the income tax, at 30 percent.
The rest, including value added tax (VAT), vary in their application, a factor that impacts cross-border business.
Simon Kaheru, vice-chairperson of the East African Business Council, Kampala Chapter, has applauded the harmonisation of corporate income tax and personal income taxes, set at 30 percent across the four partner states.
But he noted that many of the other tax heads are disparate – “which does not support the spirit of harmonisation that should enable competitiveness and a common market.”
Cost of living
Of concern to the business community in East Africa is Kenya’s proposed tax on digital assets as part of the Finance Bill 2023. The Bill seeks to regulate and tax digital asset transactions, including cryptocurrencies as well as non-fungible tokens.
“We see worrying trends this year, like Kenya deciding to increase Excisable Goods Management System (Digital Tax Stamps) rates by incredible amounts, yet other countries are realising a need to lower theirs,” said Kaheru.
Compliance with the new tax framework may increase the administrative burden on businesses and investors, necessitating investments in technology, accounting systems and professional services.
Businesses dealing in digital assets or accepting them as a form of payment will be subject to additional tax and regulatory requirements.
They will have to adapt accounting and reporting systems to account for the new tax framework and ensure compliance.
The law will impact individual investors who will need to navigate a more complex tax landscape when trading in digital assets. For instance, the Bill suggests a 12.5 percent capital gains tax (CGT) on the gains realised from the sale or transfer of digital assets.
The introduction of CGT, 16 percent VAT, and income tax on digital assets will require them to maintain accurate records and seek professional advice to ensure compliance.
The other concern is the increase of VAT on petroleum products. Audit firm PwC argues that this proposal is likely to impact the prices of transport and production of goods increasing the inflationary pressure in the economy.
“The proposed repeal of the 8 percent VAT rate on petroleum products – 16 percent VAT on fuel and VAT exemption of LPG – we expect to have a significant adverse effect on the cost of living, taking into consideration Kenya’s dependency on fossil fuel and the already high global oil prices,” said Nicholas Kahiro of PwC in a webinar on the 2023/24 budget.
Pump prices will likely breach the Ksh200 ($1.44) per litre mark if MPs approve a proposal to double VAT to 16 percent in a plan that could give Kenya the highest fuel prices in the region.
Should the Bill be signed into law as it has been drafted, a litre of super petrol could rise by Ksh13.51 ($0.097) to Ksh196.21 ($1.41) after the additional taxes while diesel will increase by Ksh12.40 (0.089) to Ksh180.88 ($1.30).
In Tanzania, new prices released by the Energy and Water Utilities Regulatory Authority (Ewura) from May 3, 2023 show that motorists in Dar es Salaam pay Tsh2,871 ($1.22) per litre of petrol, an increase of Tsh90 ($0.038), while diesel costs Tsh2,847 ($1.21) per litre, up by Tsh24 ($0.010).
According to the PwC, employer taxes in Tanzania are “a bit on the higher side,” compared with other EAC countries and includes taxes on maternity leave benefits and social security contributions, which need to be reconsidered.
There is also a 17 percent tax on telecoms company operations, 10 percent tax on money transfers, and 5 percent tax on pay-per-view TV programmes.
PwC’s proposals for new tax measures to be featured in Tanzania’s 2023/2024 budget include reducing the social security contribution tax from 20 percent to 15 percent over the next five years and abolishing a separate tax on the Workers Compensation Fund (WCF).
Instead, the Skills Development Levy could be reduced to 3 percent, with 1 percent of that allocated to the WCF, while businesses with turnover of less than Tsh200 million ($86,200) could be spared the SDL entirely.
PwC Tanzania consultant Johnson John proposed the introduction of a formal registration system for goods storage facilities to avoid overlapping taxes in the wake of a recent standoff over the issue between the government and traders at Dar es Salaam’s Kariakoo market.