Treasury Principal Secretary Kamau Thugge. FILE PHOTO | NMG
Kenyans are still reeling from heavy cost of living despite the recent fall in the monthly rate of inflation.
In
the medium term, there is no good reason to believe the situation will
change substantially as the supply side economics dictates elevated
prices and hard times for the ordinary citizen.
Amidst
this bad situation, there is pressure especially from the International
Monetary Fund (IMF) and other lenders for the government to raise more
funds from additional or higher taxes to address the gaping fiscal
deficit and slow down a steady descent into a debt crisis.
So far, the government has miserably failed to cut spending as pressure from all types of civil servants for raise mount.
One of the most tempting options for the State in such
circumstances is to raise the consumer taxes, especially for goods and
services produced by the formal sector.
Indeed, with
the East African Community value added tax (VAT) rates for Uganda and
Tanzania standing at 18 per cent, Kenya whose rate, for years, has been
16 per cent has a good excuse for hiking it.
This would have resulted in serious escalation of power bills —which today border on usury — as well as a raft of services.
Coming
at a time the country is under pressure from the IMF to adjust the
price of fuel to inflation, this could make for an unmitigated disaster.
But
on Wednesday we reported the Treasury PS Kamau Thugge saying Kenya
would not harmonise the rate with that of the two neighbouring
countries.
Whether the local rate is distortionary or
not as claimed — probably through lowering the cost of goods and
services that are inputted in regional exports and local goods—we cannot
afford a rise in VAT at the moment.
As it is, Kenyans yield more tax than the other East African countries.
Maybe the best solution is for the others to bring down their rates.
As for Kenya, the key lies in cutting recurrent expenditure and reining in runaway wastage in the government.
For now, let’s keep the VAT at the current rate.
No comments :
Post a Comment