Proposed fuel tax will worsen a bad situation
MPs are the latest party to oppose a plan by the government to double fuel taxes through the new Finance Bill, reviving a proposal that then-President Uhuru Kenyatta was forced to drop.
Increasing the Value Added Tax (VAT) from eight per cent to 16 percent will lead to price increases in every sector, which goes against the promise by the Kenya Kwanza administration to bring down the cost of living.
Besides, President William Ruto said the country would henceforth import petroleum on credit to ease pressure on the shilling, whose depreciation is blamed on escalation of costs of imports, such as fuel.
The government may want to collect as much taxes as possible to deal with the budget shortfall but it must strike a balance between revenue collection and the welfare of Kenyans.
Fuel is already one of the most heavily taxed commodities in the country and an increase in prices is passed directly to Kenyans. High cost of production hurts the country’s competitiveness as an investment destination, which exports jobs.
The National Treasury argues that Kenya needs to increase its VAT to match the rest of East Africa in the ongoing efforts to wean off the country from expensive debt. But Kenya still collects more taxes from its citizens than any other country in the region, despite having a smaller population size.
About 40 per cent of the retail price of petroleum products is consumed by taxes and levies such as excise, VAT, import declarations fee, road maintenance, petroleum development, petroleum regulatory, railway development, anti-adulteration and merchant shipping levies.
An increase in taxes is, therefore, ill-timed, coming on the back of numerous taxes that have been introduced by the same Finance Bill that will have far-reaching consequences on earnings.
Treasury mandarins should think up ways to get revenue that won’t hurt the majority of the citizens. The government can also collect more taxes if it incentivises the economy into increasing production and baking a bigger cake to share.
