Understanding the jinx known as ‘The Finance Bill’

The word “Finance Bill” has been reverberating in the ears of the public in this part of the world, especially in the neighbouring Republic of Kenya. The media has shown hundreds of the youth, dubbed Gen-Z, pouring out on the streets protesting against the Financial Bill, 2024, proposed by the government, passed into law by the legislators, but, as of now, unsigned by the President, in view of the mass protests against it.

We may ask ourselves, what is a Finance Bill and why should it generate so much opposition in some countries?

Students of real estate are privileged to study a subject called “Government Finance”, which goes by a more romantic name of “Public Finance”. Students learn about government and its role in society, government expenditure, necessitated by the need for the government to finance its crucial activities, ranging from national defence and maintaining law and order, to ensuring economic growth and prosperity, but also to ensure social and equitable development, environmental protection, and good relationships with the rest of the world. Indeed, almost throughout the word, government expenditure has been growing; which has led to budget deficits, government borrowing and a heavy national debts.

Government expenditure can be recurrent, that is money spent on wages, salaries, personal emoluments and other charges. Then there is development expenditure; that is money spent on building capital assets such as infrastructure.

Students learn about sources of government revenue, which are divided into two major groups of tax revenue and non-tax revenue. For most governments, taxes are the largest component of government revenue. There are many of these, notably, income tax, corporate tax, value added tax (VAT), property tax, wealth tax and many others.

Then there are the non-tax revenue sources. These refer to income received by the government from its administrative functions. They include various fees, licences, charges, fines and penalties, royalties, revenue from commercial enterprises, and others.

Students learn about public debt, why it has been growing and how to manage it sustainably. There is “bad” public debt, where the government borrows to finance recurrent expenditure; and “good” public debt, where the government borrows to finance capital expenditure such as highways, bridges, ports, railways, dams, water and electricity infrastructure, industries, research and development and similar kinds of expenditure.

Students learn about government finance administration, including ways of collecting this revenue and keeping it safe, how to give it out for the earmarked expenditure, and how to ensure accountability in spending government money.

Every year, the government prepares a budget, indicating the proposed expenditure and the proposed revenue sources. As is typical of governments, the proposed expenditure is not based on money at hand. It is based on what the government plans to do. After that, it proposes measures of how this money is going to be raised, from taxes and from non-tax sources.

Now, this is where the multi-headed dragon called the Finance Bill comes in. It is a law in the making that shows the government’s proposals to raise the revenue required to finance the projected expenditure.

It is a Bill for an Act to impose and alter certain taxes, duties, levies, and fees, and to amend certain written laws relating to collection and management of public revenues.

It shows the rates to be charged on what goods or activities, and what revenue administration procedures are amended, usually to improve collection and to improve efficiency. Besides, the measures may be aimed at affecting the economy in one way or the other: like encouraging local production against imports, or discouraging the consumption of certain goods.

While governments wish to collect as much revenue as possible, they aim at avoiding measures that may increase the cost of living, especially among low income households. Thus, for example, taxes on basic foodstuffs may be kept low or avoided altogether, with compensatory measures shifted to less essential goods.

Governments give the public a chance to comment of the proposed Financial Bill before it is turned into law. Many of us however, do not take notice, much as scrutinising the government budget is a civic duty. It is nevertheless encouraging that governments like that of Tanzania take into considerations, all the concerns raised.

Real estate professionals have a special interest in the Budget in general and in the Finance Act, in particular, since these impact on one of the most expensive investments for both households and firms. Taxes and fees and charges to watch include property tax, rental income tax, land rent, capital gains tax, registration fees, surveying fees, valuation fees, VAT on building materials and others.

Knowledge of government finance should not be confined to real estate professionals, but should be taken up by all professionals and the whole general public. It should be part of good governance and financial literacy.

The Finance Act, passed annually, gives legal validity of the proposed government measures to raise and administer revenue. Another legislation, passed annually as well, is the Appropriation Act, which enables the government to spend the approved budget, in that financial year.

As responsible citizens, we have to take interest in the Budget, the Finance Act and the Appropriation Act.