On Fuel Levy, our anger should be directed President Kenyatta

By Dominic Omondi | Thursday, Sep 6th 2018 at 20:54
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President Uhuru Kenyatta with Deputy President William Ruto and Cabinet Secretary for Finance Henry Rotich consults during the Launch of the Electronic Procurement and payment System at KICC. [File, Standard]

I share deeply in Kenyans’ pain at the pump following the introduction of a 16 per cent value-added tax (VAT) on petroleum products. How I wish this anger could rise to a crescendo. But our anger must be well directed. The culprit is the Government - people we elected and entrusted with resources to keep us happy.

It is President Uhuru Kenyatta, his deputy William Ruto and their legion of Cabinet secretaries, senators and Members of the National Assembly that are to blame for the current predicament. But in the few years I have been reporting on Kenya’s economy, I have seen how the media has inadvertently guided Kenyans to divert their anger at some extraneous body.

I have written articles in which I have condemned the International Monetary Fund for prescribing tough conditions. I am almost afraid that I am persona non grata for the dozens of articles I have written painting China as a spineless lender that has succeeded in pushing us further into debt. And I must say these are some of the articles I have enjoyed writing - and even reading.

Sensational headlines

But I have also seen journalistic limits stretched, as conjecture and sensational headlines hold sway. Rather than bringing forth the truth, it has been obfuscated. The bitter truth is that the current administration is fully to blame for the financial mess. It does not matter the number of times we put the words ‘IMF’ and ‘VAT on petroleum’ or ‘China’ and ‘high debts’ in the same headline, the buck stops at the President’s desk. It is the Government, headed by Uhuru, that has been given the mandate to incur debt on behalf of the State and collect taxes. We dug ourselves into this financial hole. But instead of trying to find a ladder to climb out, we are pointing fingers at some extraneous body.

One of the most oft-repeated statements is that the decision to levy 16 per cent VAT on petroleum was pushed by the IMF. Kenya is a sovereign State and no one can dictate to us. Kenyans who followed the International Criminal Court events know this very well. There is also the notion being bandied about that the dalliance with the Bretton Woods institution began with Uhuru’s administration, hence the economic mess we find ourselves in. Nothing could be further from the truth.

First, let me say that IMF’s word can only be advisory. The Government - including Parliament and the Executive - can decide to take it or leave it. This became apparent recently, when MPs unanimously rejected IMF’s advice that Kenya should abolish interest rate controls. Second, Kenya has a long history with the IMF, dating back to the 1960s when the fund was established.

If you took some time to visit the fund’s website, you would notice that former President Mwai Kibaki had at least two arrangements with the IMF by the time he left office. These were the Poverty Reduction and Growth Facility (PRGF)-supported programmes, and the $508.7 million (Sh50.8 billion) Extended Credit Facility, another three-year programme.

The first arrangement Uhuru had with the IMF was in 2015. Kenya signed for a Standby Arrangement and Standby Credit Facility, both adding up to $1.5 billion (Sh150 billion). However, the decision to levy VAT on petroleum products was mooted in 2013 - two years before the Jubilee government approached IMF for the Sh150 billion credit facility. It is Kenya that committed to implement the tax measure as part of its promise to reduce fiscal deficit, or the gap between tax revenues and spending. But it is not very clear if the decision to introduce the tax was IMF’s.

I surmise that when the dynamic duo of UhuRuto came to power in 2013, with the ICC tag hovering over their heads, they were exceedingly boisterous. They probably wanted to prove to the world - and especially the West, of which the IMF is a part - that they could steer this country to prosperity with minimum help from outside.

And so, as part of their manifesto, they wanted to considerably reduce the budget deficit. To this end, the first thing they had to do was to look for quick ways to widen the tax bracket. And the low-lying fruits were the myriad goods and services that did not attract the 16 per cent VAT.

Basic foodstuff

Maize flour, cooking oil, wheat flour, milk and other basic foodstuff were not spared. Against the hue and cry, most of these goods were shifted from zero-rated status to exempt status. The Government expected to mobilise additional taxes from these new revenue streams.

Petroleum products were among those supposed to attract 16 per cent VAT, with Treasury estimating that it could collect as much as Sh71 billion. This did not happen, and Treasury continued to run massive budget deficits taking up loans to build roads, railways, ports, energy projects and other mega infrastructure. The Government’s fiscal deficit grew wider, unsettling the IMF.

Kibaki, of course, never did something that pricked the global lender’s nose. He lived within his means, so to speak. That might explain why some people have mistakenly concluded that Kibaki had given IMF a wide berth. UhuRuto were not as disciplined in the management of the economy, and that is why they should be blamed for the current mess.

Mr Omondi is a business reporter at The Standard

 

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