Kenya’s private sector has warned that the 16 per cent VAT on petroleum products that came into effect last Saturday would increase the cost of doing business.
The Kenya Association of Manufacturers (KAM) said retailers would be hard-hit by the increase, with the heaviest burden being borne by poor Kenyans.
“By charging the 16 per cent VAT, manufacturers are subject to an increase in the cost of transportation of raw materials and finished products and the increase in the cost of power, among other overhead costs,” said KAM in a statement.
Treasury Cabinet Secretary Henry Rotich said the levy, proposed in the 2012-2013 financial year and postponed two times, was necessary to help raise revenue for budget support.
However, both manufacturers and consumer lobby groups said the measure was the “wrong tax at the wrong time” as it would hit families at a time they were under pressure from Government spending cuts.
“We will petition the President to sign the Finance Bill 2018 that defers the VAT for another two years because Kenyans are already suffering from high inflation without a corresponding rise in wages,” said Stephen Mutoro, the head of the Consumer Federation of Kenya.
Kenya’s Private Sector Alliance (Kepsa), said the tax would increase inflation by more than four per cent and called on Treasury to find alternative avenues of bridging the budget deficit.
“The increase in cost of doing business will not only impact the local investors but also render our economy uncompetitive and repel investors,” said Kepsa in a statement released just days before the tax came into effect.
“We propose that the Government reconsider the proposal to charge VAT on fuel and instead consider pro-business strategies that strike a structural fiscal balance, address the inefficiencies with our tax collection systems, and increase the tax bracket to avoid tax fatigue by a few taxpayers,” read the statement.
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The sentiments were echoed by KAM, which stated that the Government was scuttling its Big Four agenda on boosting manufacturing and creating jobs.
“The business environment in Kenya is increasingly becoming cost-disadvantaged and a great disincentive for foreign direct Investment. To stay afloat, business will have to make very hard and drastic decisions of whether to shoulder the extra cost or pass over the tax burden to already overburdened consumers,” said KAM.