Contractors and suppliers to the government will from this month suffer a slight reduction in payments for the goods and services they deliver, following a new levy that will cut their contract price by 0.03 percent.
In a circular dated August 30, 2024, the Public Procurement Regulatory Authority (PPRA) asked officers across national and county governments to start charging the Public Procurement Capacity Building Levy from September 1, setting in motion the implementation of the levy that was proposed last year.
“In order, to provide funds for the capacity development of persons involved in public procurement and asset disposal proceedings through mentoring, training, and technical assistance, the Cabinet secretary, National Treasury, and Economic Planning, pursuant to Sections 24(5)(d) and 180 of the Act, issued the Public Procurement Capacity Building Levy Order, 2023 vide Legal Notice No. 206 of 6th November 2023.
“Paragraph 3(1) of The Levy Order, 2023 provides that ‘there shall be paid a levy by a supplier on all procurement contracts signed between the supplier and a procuring entity, at the rate of 0.03 percent of the value of the signed contract, exclusive of applicable taxes,” read the circular by PPRA director-general Patrick Wanjuki.
The new levy means that a business in a Sh1 billion contract with the government now has to surrender Sh300,000, while a firm supplying goods valued at Sh1 million will be levied Sh300.
The new levy will see the government collect between Sh484 million and Sh630 million from its contractors and suppliers annually, an estimate using Kenya’s Sh16.13 trillion gross domestic product (GDP) shows.
“In Kenya, when using estimates of the use of goods and services and development spending, it is estimated to account for 10 percent to 13 percent of GDP,” said PPRA last year.
Levy order
Mr Wanjuki notified public entities that the levy would be charged on new contracts and contract extensions and variations effected from this month.
“The Levy Order, 2023, shall apply to all signed contracts resulting from all procurement proceedings initiated from September 1, 2024.
The Levy Order 2023 shall also apply to any contract extensions, renewals, and/or variations made from 1st September 2024,” said the circular.
It added that even long-term contracts are going to be affected, where such suppliers and contractors would be charged the levy where local service orders or local purchase orders are raised as and when orders are made.
Entities will be required to file monthly reports on all levy amounts they collect and remit to PPRA through the Public Procurement Information Portal.
“Procuring entities shall remit the levy amounts to the authority through the eCitizen payment platform by the 20th day of the subsequent month; failure to which a penalty of five percent of the outstanding levy amounts shall apply for each and every month the levy amount remains unpaid,” said the circular.
The levy comes as a new burden to businesses that supply goods or have other contracts with the government, given other levies and taxes effected in recent months, that have raised the cost of doing business in the country.
They include the Housing Levy, which has employers matching 1.5 percent of employees’ salaries for the affordable housing programme, and the rise of value-added tax on fuel to 16 percent, which raised the overall cost of doing business.
Following the initial proposal to introduce the Public Procurement Capacity Building Levy last year, an association of public sector suppliers objected to the move as one that would amount to indirect taxation.
“Granted the right to raise funds is key to the sustainability of key government institutions, we as the association oppose this proposed levy.
“We strongly believe that governments should not look for indirect modes to tax businesses,” said the association of public sector general suppliers in August last year.
