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November 18, 2018

ERIC KIRAITHE: Fuel VAT: Bad policy or political hypocrisy?

It could well be that in the current battle over VAT, those who have coalesced around its short term negative socioeconomic impact will carry the day. But at what cost? Who will be the real loser? Is the whole project about national debt? Does VAT on petroleum products portend any socioeconomic well-being for Akinyi, Fatuma and Mwikali?

In this matter, are there roads that must not be followed however smooth? Is it a case of a bad policy or a severe scarcity of politicians who are courageous enough to speak the truth?

Parliament has been distinguished by the haste to pass politically convenient laws while viciously protecting unjustifiable perks. This is consistent with a system that is deliberately focused on excluding majority of the population from meaningful economic participation through Machiavellian deception. This is a system where the few politically strong amass what they can as the majority are tranquilised with political rhetoric as they suffer.

Value Added Tax is charged on legally identified goods, services and supplies. Under the VAT Act 2013, petroleum products were exempted from VAT up to August 31, 2016. In June 2016, the exemption was extended to August 31, 2018. By law, petroleum products are subject to VAT effective September 1, 2018. However, through Finance Bill 2018, the National Assembly has proposed to further extend the transition period to September 1, 2020. This bill is yet to be presented to the President for assent.

The 2018-19 budget (passed by the same National Assembly) projected revenue proposals that included Sh35 billion from VAT to be levied on petroleum products effective September 1. If this Bill is assented to, the Sh35 billion now becomes a huge deficit.

In a manner that can only be described as an attempt to deceive the electorate, the Finance Bill 2018 removed tax policy measures with a negative revenue impact of a further Sh13.6 billion. Earlier, during deliberations for the Appropriation Bill 2018, the National Assembly provided for additional Sh18.9 billion expenditures; most probably with an eye on their perks. The implications is that Kenyans have to contend with a budget deficit to the tune of Sh70 billion.

Three months into 2018-19, ministries, departments and agencies have already begun their annual programmes and projects as per the budget passed in June. So have county governments and constitutional independent bodies. Neither the National Assembly nor the Judiciary, who have stopped this revenue collection, have suggested how to bridge this gap by identifying the expenditure items to be removed from their own exorbitant budgets.

Going by the gusto MPs have shown in front of media cameras, one would have expected them to identify some allowances for immediate freeze. An example is CDF, which has been identified as a clear constitutional conflict of interest between oversight and management of public funds.

Treasury’s options are not only limited but effectively more painful for Wanjiku. They include expenditure cuts for critical but politically less sensitive projects and social services to the tune of Sh70 billion or increase borrowing, thus increasing debt levels. Alternatively, Treasury can increase tax rates for other tax heads such as Pay As You Earn, corporation tax and excise duty. The last and most painful would be raising VAT for other services from 16 to 18 per cent like other EAC countries.

Economists have already warned that imposing heavier tax burden on existing VAT payers will further choke our struggling industries, hence jeopardise our job creation dream.

Is Treasury levying VAT to pay debt? An in-depth study of the Appropriation Bill 2018 would show that the projected revenue from VAT on petroleum products is intended for projects covering all regions to improve GDP and living standards for the least privileged.

The much-maligned national debt has been incurred to progressively upgrade our roads, airports, seaports, railway and energy generation without which our shared vision of a prosperous Kenya will remain a mirage. The notion that VAT on petroleum products is for debt servicing is misleading.

If Kenya is to prosper, leaders must stop deceptive rhetoric and mobilise citizens to pay the painful price of development. This is the legacy our children need.

Government spokesperson

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