Budget analysts warn of hard times ahead

By Macharia Kamau
Treasury may not have introduced major tax measures in the budget statement presented to Parliament on Thursday because it expects reforms in the Value Added Tax (VAT) regime to yield results in growing revenues, analysts have said.

Life is bound to be more taxing should the VAT Bill 2012, that the Finance ministry plans to bring to Parliament pass as it is.

The VAT Bill 2012 is expected to have far-reaching effects, as it proposes to introduce tax on commonly used items that are tax-exempt or zero rated.  They include essentials like flour, milk, bread, and sanitary towels.

Through the Bill, the Government is attempting to expand the tax base by increasing focus on consumptive taxation.

The Act also gives the Kenya Revenue Authority (KRA) powers to revise taxes levied on alcoholic drinks every quarter, with a likelihood of seeing change in pricing of beer, wines and spirits every three months.

More revenue
Tax experts from PriceWaterhouseCoopers (PWC) said Finance Minister Njeru Githae refrained from the traditional hunting grounds to increase government revenue – including the popular sin taxes.

Taxation for luxury items like alcohol and cigarettes have always gone up –  because it is eyeing increased reforms in tax administration and in particular the changes that will be brought about by the bill.

“The minister did not announce major increases in taxes mostly because he is looking at a broader agenda of reforms in the tax system,” said Rajesh Shah tax partner with PWC.

“The VAT Bill will be key in instituting reforms in the country’s taxation regime. It is expected to broaden the tax base and in turn increase revenues generated from taxation.”  “Prices of essential goods might go up as Treasury moves focus of tax revenue from income to consumption.” But he noted the Bill is generally better than the Act.

But Martin Kisuu, of  PKF said the VAT Bill might be retrogressive and harmful to certain key sectors of the economy if it passes through Parliament in its current state.

Maize and wheat, bread, milk, sanitary towel and medical dressings and plasters would all attract a 16 per cent value added tax, he said.

Other items that are either zero rated or tax exempt that will attract tax if the Bill goes through as it is include computer software, exercise books, cut flowers, wood charcoal, postal services, medical dressings and plasters, infant formula, newspapers, and journals.
Tour operation and travel agency, helicopters, aircrafts, landing services for aircrafts will also be taxable.

This would mean prices of these goods would go up by anything upwards of 16 per cent, which is the standard VAT rate, should the proposed bill become law in the current state, as manufacturers of commodities increase costs to recover money paid to the taxman.