By Nancy Mathenge and Caleb Langat
After outlining the notable achievements of President Kibaki across the various sectors of the economy, the Finance minister went ahead to present his Budget Statement for the year 2012/2013 and the much-waited VAT Bill was finally tabled for debate and approval by the House.
Despite stakeholders providing their views and subsequently availing themselves for the stakeholders meetings, it appears with a quick glance that few, if any, of the views and concerns presented were incorporated in the VAT Bill that was tabled before Parliament.
This is an unfortunate development, which suggests that the stakeholders meetings were only held to tick the Governance requirements box, rather than an honest effort to receive and adopt stakeholder concerns.
So far, the Bill represents bold measures and reforms taken by the Government to accelerate economic growth through widening the tax collection net.
As this is a consumption tax, it will impact all Kenyans, rich and poor alike, in shouldering the responsibility of growing the economy.
The VAT Bill is a representation of the tough choices that the Government is taking to secure its economic growth, and reduce borrowing, so as to ensure self-sustenance in these tough times.
The Bill has also sought to reduce the number of items listed under the Second and Fifth Schedules, which list the exempt and zero-rated supplies, therefore making them subject to VAT. The effects of this move will be profound and have far-reaching implications to both individuals and business.
Upward adjustment
Of importance, is the proposed treatment of basic goods such as foodstuff, which the Bill seeks to impose value added tax. This will subject most of the basic consumer products to VAT at 16 per cent, which will consequently lead to a higher cost of living, owing to the upward adjustment in the price of most commodities.
We must zero rate or exempt from VAT basic goods such as food, so as to lower the cost of these goods by not imposing any consumption taxes on the low income individuals, who represent the majority, especially in a developing country like Kenya.
Although the increased rates will lead to a significant increase in tax revenues, we would think that there are better mechanisms to raise revenues without necessarily having to subject the already struggling Kenyans to tax on the most basic of commodities.
This could possibly be done through adjusting the redistributive income tax model to accommodate different taxpayers at their rightful capacity.
Should this VAT Bill be passed in Parliament without incorporating the stakeholders views, it will only create a harsh economic environment, which could discourage business entities that are already struggling to remain compliant.
The writers are tax managers at Deloitte East Africa. The views expressed in this article are the authors’ and do not necessarily represent those of Deloitte in East Africa.
