Harmonise regional VAT at 18 percent

In Summary

• Kenya's rate of VAT at 16 percent is lower than Uganda or Tanzania

• Government needs more tax revenue to fulfil its ambitious policy manifesto

President William Ruto.
President William Ruto.
Image: PCS

There are complaints that the new Ruto government is going after the formal sector too fiercely in its pursuit of increased tax revenue.

NHIF contributions are going to be doubled for those earning over Sh100,000 per month. Employees are facing a 6 percent deduction for NSSF although this will be matched by employers. And rental tax for landlords will be double to 30 percent.

This is actually reasonable. Paying Sh1,500 per month for NHIF is excessively cheap. NSSF saving is positive so long as the contributions are not swindled. And landlords should pay income tax at 30 percent so long as they are allowed to deduct annual expenses.

But it is also true that those in formal employment bear the brunt of increased taxation while those in the informal sector largely escape it.

VAT in Kenya is 16 percent but it is 18 percent in Uganda and Tanzania (who are both not happy about the differential). A simple harmonisation of regional VAT at 18 percent would raise a huge amount of revenue for the government and also share the tax burden more equally between the formal and informal sectors.

Quote of the day: “Why should you mind being wrong if someone can show you that you are?”

A J Ayer
The English philosopher was born on October 29, 1910

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