Just two months ago, the government lobbied hard to get the National Assembly to pass the VAT 2013 Bill ostensibly to plug a Sh10 billion hole in the 2013/14 financial year. Parliament was won over and the VAT Act 2013 was enacted and became operational last Monday.
Prices of a significant number of essential commodities have soared in the aftermath of the new tax law raising questions about wisdom of its enactment. These questions are fuelled by the Controller of Budget’s report that various ministries and departments failed to spend Sh339.6 billion allocated to them in the year ended June 30, 2013, the very month when the push for the new tax law started.
Given the fact that Treasury officials were aware of the government’s failure to spend Sh265 billion during the 2012/2013 financial year and nothing had been done to increase the absorption rate can they tell Kenyans why it was necessary to prepare a much larger budget requiring the raising of still higher taxes?
Assuming that the money not spent is returned to the National Treasury, would it not have been easier to use part of the returned money to reduce the budget deficit?
But, what beats logic even more is the realisation that the very ministries and departments that have perennially become a hallmark of failure to fully utilise their budget allocations are the same ones that get the lion’s share of the budget year in, year out.
The reasons for the low absorption rate are well known. They include lengthy procurement procedures, stringent donor conditionality and weak reporting. Other hurdles include weak accountability, poor monitoring and tracking systems and inadequate project supervision.
Whereas President Uhuru Kenyatta has called for a revision of the public procurement laws to speed up the project implementation, it would not be prudent to expect that this will done in time to have any significant impact on this year’s budget. Unless the government is working in secret, there is reason to believe that little is being done to remove the other hurdles.
Eye on the ball
That means the 2013/14 fiscal year is likely to record a higher proportion of funds not spent because of the length of time it took to install the new government into office. The on-going cases against the President and his deputy at the International Criminal Court (ICC) at The Hague are doing nothing to concentrate minds on the ball.
The upshot of all this is that, all things remaining constant, there will be an increase in the amount of money not spent by the end of the current fiscal year. The frantic search for money to meet part of the expected budget deficit is, therefore, not necessary.
Perhaps, time has come when Treasury officials should climb down from their ivory towers and do things that make sense to ordinary Kenyans. After all, it is these ordinary Kenyans who bear the cost when there is wide divergence between theory and practice.
The best place to start is by repealing the VAT 2013 Act that has demonstrated its potential to escalate not only the consumer prices but also set to dampen the growth of real estate because of slapping a 16 per cent tax on the sale of commercial properties such as office buildings, retail outlets, hotels and exhibition halls.
The Treasury should also streamline its plans to set up a new budgetary system that will allow easier re-allocation of funds from ministries and departments with surpluses to others that have deficits.
