The government has begun enforcing a new levy on contractors supplying goods and services to both national and county governments, a move poised to increase the cost of public procurement.....CLICK HERE TO READ THE FULL ARTICLE>>>
Starting this month, all contractors will be required to remit the levy, marking the beginning of an era where every government-related contract comes with an additional financial obligation.
The Public Procurement Regulatory Authority (PPRA) issued a notice on August 30, declaring the Levy Order, 2023 officially in effect. The levy will apply to all procurement contracts signed from September 1, 2024, including extensions, renewals, and variations. This regulatory shift introduces a 0.03 per cent levy on the total value of signed contracts, excluding applicable taxes, meaning even small-scale suppliers will face new costs.
For instance, a contractor working on a Ksh1 billion project will be required to pay Ksh300,000, while a business supplying goods worth Ksh1 million will be levied Ksh300.
The implications of this new levy are far-reaching, especially for long-term contracts where Local Service Orders (LSOs) or Local Purchase Orders (LPOs) are involved. The government has made it clear that this levy will apply across the board, from short-term projects to multi-year contracts.
The PPRA has warned that failure to submit the levy by the 20th of the subsequent month will result in a penalty of 5 per cent of the outstanding levy for each month the payment remains overdue.
Additionally, all procuring entities must file monthly returns detailing the deducted and remitted levies via the Public Procurement Information Portal. This strict enforcement points to the government’s commitment to ensuring compliance with the new regulations.
Treasury introduced this levy last year under the guise of a “capacity building levy,” aiming to bolster public procurement systems.
However, contractors and suppliers are likely to feel the pinch, as the cost of doing business with the government escalates. With the levy extending to contracts involving part payments, instalments, or milestone-based agreements, it’s evident that this new regulation will have a broad and deep impact.
The Public Procurement and Information Portal, which tracks procurement activities, shows that 7,554 contracts have already been entered into by both national and county governments.
However, this figure only scratches the surface, as not all tenders and contracts are published on the portal. Last fiscal year, state entities entered into 20,763 contracts, up from 11,579 the previous year.
The financial implications of these contracts are massive, with estimates suggesting that the total value of procurement contracts could range between Ksh1.45 trillion and Ksh1.89 trillion.
This new levy is expected to inject additional funds into the government’s coffers, but it also raises questions about its impact on contractors, especially smaller businesses….CLICK HERE TO READ MORE ARTICLE>>>
