Unpredictable tax increases hurting businesses

Traders hawking cassavas at Majengo market in Vihiga county on August 4, 2022. [Benjamin Sakwa, Standard]

As our new government seeks to address the high cost of living, it will need to be very mindful of how taxation policy influences our economic ecosystem. Excise taxes, specifically, account for an important part of government revenue. But, if applied arbitrarily, they have far-reaching unintended consequences. For example, significant excise tax hikes can result in price disparities between neighbouring countries, spurring illicit trade and resultant loss of government revenues. This is already a reality in Kenya for sectors such as alcohol, cigarettes and bottled water.

This issue is acknowledged in the draft National Tax Policy due to be considered by the Cabinet. It states in part: "The rate of excise duty in Kenya is high compared with that of EAC Partner States which is considered to be contributing to increases in illicit trade through smuggling."