The word on every Kenyans mind is VAT – Value Added Tax. Several jokes, as is common with Kenyans have surfaced on the social media – “don’t say VAT say VITA” *Vita means war. Last week the VAT bill went into effect and several items which were previously exempt from VAT will now be charged a 16% VAT.
Most shocking is the tax added on basic items such as milk, bread, electricity under 200 Kwh consumption, books, cooking gas, computers, mobile phones, computers and accessories and farm chemicals and implements. Basically most tax breaks which helped the economy grow in the last 10 years or so are gone.
I went by the supermarket on Sunday to see how hard it is to take and when milk which cost Kes. 42 now costs Kes55 or even Kes 64 in some cases, the change is a jolt. For a person whose income has not been increased to match the cost of living, this is a difficult change to absorb. For parents who have children in school it means not only will the fees for tuition increase but also boarding fees and other expenses.
Given that the government has very little regulation on the setting of prices, already we consumers can see shopkeepers trying to stay afloat by passing on any additional expenses directly to consumers. Many prices of goods have gone up – regardless of whether they were on the VAT bill or not, while the government is issuing threats, they cannot back their threats with actual action- especially outside the major supermarkets in the major cities. The result is that the cost of many goods have gone up- directly preventing the poor people from accessing the basic food items.
Over the last one year or so, the banks in Kenya have been negotiating with the Kenya Revenue Authority over imposition of 10% tax on the charges levied by banks. The banks lost the war and as of September 1st have passed on a additional charge of 10% on every charge levied by the bank. The charges go directly to the Kenya Revenue Authority but also make banking expensive for the consumer especially those falling in the medium to low income bracket.
The problem that the Kenyan government faces is that they do not have enough people paying tax. Tax evasion is very high in Kenya and most people choose to not pay tax if they can get away with it. A simple solution for Kenya and most countries in the same dilemma is to impose a VAT or consumption tax which is easy to collect because it is pegged on goods that consumers have to buy and hence force everyone to remit tax to the government. The solution to impose tax on additional items seems effective on the surface however the repercussion can be dire.
If consumers cannot afford certain goods, and the sellers cannot decrease the price due to their need to make a profit and at the same time remit taxes to the government, then everyone loses. Consumers stop buying, businessmen go out of business and the government ends up losing that tax stream. Farmers have had a difficult time over the years trying to stay afloat and many farms have been turned into real estate which garners more money- the trend will likely continue should farmers find the tax prohibitive.
However, the issue at hand is that all the tax collected goes to fund MP’s entertainment allowances as Kenyan artist and activist Juliani would say. Seeing the high level of indiscipline and corruption in the government, remitting more taxes does not necessarily mean that we will have better services. Hospitals are struggling to provide basic healthcare and free maternal care, last 3 months the government has struggled to pay its civil servants and all government pensioners were paid about 3 weeks late.
Teachers just resumed classes after a 3 weeks strike, and doctors were on the verge of taking to the streets again. The government clearly has a cash and budget problem however the solution chosen is short term and will cause an increase in the cost of living which in general hurts the poor most that any other group.
MPs have increased their salaries and allowances and it is not farfetched to think that they might table a bill to increase it again in an attempt to meet increased cost of living due to a VAT bill which they themselves passed. Education I no longer a priority because what does it matter that children have access to laptops when they cannot eat, still study under a tree and can barely afford essentials such as uniform and writing books and textbooks?
The prices of computers and mobile phones and other electronics will increase which will slow down the technological advancement which has been one of the backbones of development in Kenya in the last 10 years. And all this will happen as we watch the richer get richer and the poorer get poorer.
If the Kenya government can with speed assure us that the collection of additional VAT will result in better roads, better social services, improvement in education and health services and helping the poor have access to basic necessities, then Kenyans might be a bit accommodating. However as it seems , the economic downturn which came in with the Jubilee government in March seems to be getting worse, and there is no relief in sight.