I understand the Kenya Revenue Authority’s situation: they constantly need to collect more revenue. How that revenue is utilized is not within their mandate.
The thorn in the new VAT Bill is the removal from exemption of items such as medicines, sanitary towels, baby formula, napkins, napkin liners, feeding bottles, exercise books, foodstuffs among others. These items were on the exempt list for a good cause – making such essential goods tax exempt means that they are within the reach of Kenyans; many of whom are living below the bread line.
The poor are the ones who bear the highest economic burden whenever the economy is not doing well. Any inefficiencies in the market hit the poor man’s wallet hardest. To remove these items from his basket of items is immoral. As it is, government subsidies would come in handy to prop up the people at the bottom of the income pyramid.
The Commissioner General’s assertion that exercise books ought to attract the 16% VAT, and subsidies be offered to bools destined for public schools is a recipe for disaster – this will only stoke the passions of already enraged parents, who have had to move their children from over-crowded public schools to the more expensive private ones. To then assume that these parents are wealthy and can afford the extra VAT burden would be unfair.
The main reason the VAT Bill is being amended is because the 24 billion held by the Kenya Revenue Authority as tax refunds owed to various businesses has become almost impossible to pay back. Indeed, in my estimation, the Authority is likely to ask businesses to offset their future VAT liabilities. But even this will not work as it’s merely postponing the inevitable.
Deleting the “VAT Exempt/Zero Rated Schedule” from the Act to solve the refund problem would be throwing away the baby with the bath water.
It is not a populist move to keep food on people’s tables, books in children’s hands and nappies on babies bums; not to mention sanitary towels for the ladies. The affordability of essential goods is the mark of a civil and responsible government.
Finally, to collect more taxes, the time-tested measure has always been to broaden the tax net.
The Bean Counter Thinks: Foster a system that ensures SME’s pay their fair share of taxes, but lower than the 30% corporation tax, and KRA will easily collect the 5 billion targeted by the VAT Bill.