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Tax hike on monetary services coming in Kenya

Tax hikes in KenyaKenya’s president proposed hiking taxes on mobile money transfer services and other money transfer services, documents sent to parliament this month showed, amid a tussle in government over how to boost revenues without hurting the poor.

Uhuru Kenyatta proposed increasing the excise duty on mobile money transfer fees from 10 to 12%, documents viewed by Reuters showed. Parliament is set to debate and vote on the measure on Thursday.

The latest proposal comes as Kenyatta, re-elected last year after an extended and bloody election, seeks to implement planned tax hikes and other measures in this year’s budget designed to fund government development goals including universal healthcare and affordable housing.

Lawmakers and some members of the public have resisted the measures, particularly a new tax on petroleum products. Kenyatta said on Friday the tax is necessary, but that he wanted to cut it to eight from 16%.

Kenya’s biggest mobile phone operator Safaricom is opposed to a proposed tax rise on mobile phone-based transfers, arguing it would hurt the poor, most of who do not have bank accounts and rely on mobile transfer services such as Safaricom’s M-Pesa.

M-Pesa, which Safaricom pioneered in 2007, now has around 25 million users in the East African nation of 45 million, handling billions of shillings in daily transfer volumes. The model has been copied in other regional markets and beyond.

Last month, lawmakers voted to delay the hike in fuel taxes for two more years, but the national revenue authority started collecting the tax anyway, triggering a strike by fuel transporters and public anger.

They also voted to retain an interest rate cap the International Monetary Fund said must be scrapped or modified in return for a new standby arrangement. The existing standby arrangement expired this month.

Kenyan businesses and ordinary people routinely complain of a heavy tax burden.

Early this month, the Kenya National Chamber of Commerce and Industry (KNCCI) said the government could widen the tax base and increase the rate of tax compliance to 50 from the current 17%.

It also urged government to cut expenditure, reduce wastage of public funds and deal with corruption, which some past studies have found account for the loss of up to a third of the government’s annual budget.

 

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