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What are the controversial parts of the Finance bill?

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Introduction

The Finance Bill is a critical piece of legislation in Kenya that outlines the government's revenue-raising measures for the fiscal year. It often includes amendments to various tax laws and other financial regulations. However, certain provisions within the Finance Bill can become controversial due to their potential impact on different sectors of the economy and the general populace. This response will delve into the controversial parts of the Finance Bill, citing relevant sections and articles from the Constitution of Kenya, the Income Tax Act, the Value Added Tax Act, and other pertinent legislation.

Introduction
Increased Tax Rates
- 2.1 Income Tax
- 2.2 Value Added Tax (VAT)
- 2.3 Excise Duty
New Tax Introductions
- 3.1 Digital Services Tax
- 3.2 Minimum Tax
Tax Exemptions and Reliefs
- 4.1 Removal of Tax Exemptions
- 4.2 Reduction in Tax Reliefs
Impact on Small and Medium Enterprises (SMEs)
Public Participation and Transparency
Conclusion

2. Increased Tax Rates

2.1 Income Tax

Source: Income Tax Act, Cap 470
Controversial Provisions:
- Increase in Personal Income Tax Rates: The Finance Bill often proposes changes to the personal income tax brackets, which can lead to higher tax liabilities for individuals. This is controversial as it directly affects disposable income.
- Corporate Tax Rate Adjustments: Changes in corporate tax rates can impact business profitability and investment decisions. Higher corporate taxes can deter foreign investment and burden local businesses.

2.2 Value Added Tax (VAT)

Source: Value Added Tax Act, 2013
Controversial Provisions:
- Increase in VAT Rate: Proposals to increase the standard VAT rate from 16% to a higher percentage are often met with resistance. This is because VAT is a consumption tax that affects all consumers, leading to higher prices for goods and services.
- Expansion of VAT Scope: Including more goods and services under the VAT regime can be controversial, especially if it affects essential items like food and medicine.

2.3 Excise Duty

Source: Excise Duty Act, 2015
Controversial Provisions:
- Higher Excise Duty on Alcohol and Tobacco: Increases in excise duty on products like alcohol and tobacco are often justified on health grounds but can be controversial due to their impact on the respective industries and consumers.
- Excise Duty on Mobile Money Transactions: Proposals to increase excise duty on mobile money transactions can be contentious, as they affect a large portion of the population that relies on mobile money for financial transactions.

3. New Tax Introductions

3.1 Digital Services Tax

Source: Finance Act, 2020
Controversial Provisions:
- Introduction of Digital Services Tax (DST): The DST targets revenue generated from digital platforms and services. This is controversial as it affects global tech companies operating in Kenya and can lead to double taxation issues.
- Compliance and Enforcement: The mechanisms for enforcing DST can be complex, leading to compliance challenges for businesses.

3.2 Minimum Tax

Source: Finance Act, 2020
Controversial Provisions:
- Introduction of Minimum Tax: This tax is levied on gross turnover, regardless of whether a business is making a profit. It is controversial because it can burden loss-making businesses and startups, potentially stifling growth and innovation.
- Legal Challenges: The minimum tax has faced legal challenges, with arguments that it contravenes the principles of fair taxation and economic justice as enshrined in the Constitution of Kenya.

4. Tax Exemptions and Reliefs

4.1 Removal of Tax Exemptions

Source: Income Tax Act, Cap 470; VAT Act, 2013
Controversial Provisions:
- Removal of Tax Exemptions for Certain Sectors: The Finance Bill may propose the removal of tax exemptions for specific sectors, such as agriculture or manufacturing. This can be controversial as it increases the tax burden on these sectors, potentially affecting their competitiveness and growth.

4.2 Reduction in Tax Reliefs

Source: Income Tax Act, Cap 470
Controversial Provisions:
- Reduction in Personal Reliefs: Proposals to reduce personal reliefs, such as mortgage interest relief or insurance relief, can be contentious as they directly affect taxpayers' disposable income.
- Impact on Low-Income Earners: Reducing tax reliefs can disproportionately affect low-income earners, leading to increased financial strain.

5. Impact on Small and Medium Enterprises (SMEs)

Source: Micro and Small Enterprises Act, 2012
Controversial Provisions:
- Increased Compliance Costs: New tax measures and higher tax rates can increase compliance costs for SMEs, which may lack the resources to navigate complex tax regulations.
- Stifling Growth: Higher taxes and reduced reliefs can stifle the growth of SMEs, which are crucial for job creation and economic development in Kenya.

6. Public Participation and Transparency

Source: Constitution of Kenya, Article 10 and Article 201
Controversial Provisions:
- Lack of Adequate Public Participation: The Constitution mandates public participation in the legislative process. However, there are often concerns that the Finance Bill is passed without sufficient input from the public and stakeholders.
- Transparency in Revenue Allocation: There are often calls for greater transparency in how the additional revenue generated from new tax measures will be utilized. Concerns about corruption and mismanagement of public funds can make new tax proposals highly controversial.

Conclusion

The Finance Bill in Kenya is a crucial legislative document that outlines the government's revenue-raising measures. However, certain provisions within the bill can become highly controversial due to their potential impact on different sectors of the economy and the general populace. Increased tax rates, new tax introductions, removal of tax exemptions, and reduced tax reliefs are some of the contentious issues. Additionally, the impact on SMEs and concerns about public participation and transparency further contribute to the controversy surrounding the Finance Bill. It is essential for the government to balance its revenue-raising objectives with the need to foster economic growth and ensure social equity.