Education Sector Top Target as Treasury Proposes Six New Taxes
Education Sector Top Target as Treasury Proposes Six New Taxes. President William Ruto’s administration will go after schools and insurance companies after the National Treasury proposed at least six new taxes next year to raise revenue due to pressure to pay off debt.
There are signs of more shocks for households and confusion for businesses as new adoptions drive the private tax sector to implement national tax policies.
If Treasury proposals are implemented, education services will be subject to value added tax (VAT), currently charged at 16 per cent on most goods and services.
It will see schools providing services not directly related to education comply with VAT, meaning things like swimming lessons, taekwondo, chess and ice skating can be used.
This comes at a time when the country is ramping up its transition to a new competency-based curriculum (KBK) course, where such additional classes are often offered at an additional cost.
“Educational services in Kenya are exempted from VAT so that they can be accessed by all students. However, due to the difference in fees and services, the benefit of the exemption is not the same for all students,” he said.
“To remove this discrimination, the introduction of VAT on additional benefits is necessary. In this case, schools will explore the introduction of VAT on services provided by the government but not directly related to education.
The extension will also see insurance services currently exempt from VAT. To address climate change, Kenya is also proposing a domestic carbon tax on fossil fuels to promote a clean energy transition and promote the “polluter pays” principle. A carbon tax is levied on vehicles and other equipment that use fossil fuels under the Nairobi Declaration adopted at the end of last week’s climate summit, which proposed a similar tax globally.
Kenya will join countries such as India, Indonesia, South Africa and Vietnam that already have a carbon tax and are exploring carbon market regulations. The fossil fuel, coal, will face a new tax burden amid a fierce battle against climate change. “Emissions from the use of coal contribute to local air pollution and global warming. Therefore, the government will introduce customs duties for coal,” he said.
Speaking at the climate summit, Ruto told world leaders, investors and multilateral lenders that Africa must “lead the world in a new direction” in tackling climate change and green finance. Motor vehicle tax is also assessed by the government as an annual tax that must be paid by vehicle owners at the point of insurance. The amount received will vary depending on the manufacturer and engine of the vehicle.
In addition, if the Kenya Revenue Authority (KRA) misses its collection target of about $2 trillion, the government will introduce additional tax levies above the existing tax rate to cover the shortfall. This means, for example, an additional fee of 5 percent can be levied, raising the total taxable amount from 30 percent to 31.5 percent.
Mobilizing sufficient tax revenue through new taxes and expanding the tax base are Ruto’s main challenges in raising revenue to fund his budget due to high debt servicing costs. The government is pressing to raise revenue to match the country’s economic potential.
The International Monterey Fund (IMF), Kenya’s main policy maker, estimates that the tax will amount to 25 percent of the country’s gross domestic product (GDP). Current collections are 14 percent of GDP.
The fund aims to return 15.8 percent of GDP.
Education Sector Top Target as Treasury Proposes Six New Taxes