Taxes are a mandatory revenue source to all governments. That is why paying tax is both necessary and obligatory. Taxation enables revenue mobilisation by governments for promotion of economic growth, vital infrastructure, social and security needs.
In justification of the regimen that fell in place at the weekend which saw a 16 per cent hike, the Treasury and taxman’s position is that the changes are contained in the Finance Act of 2013 which extended the exemption for three years and a further two years and that consequently the contentious VAT charged on petroleum products has now come into effect.
Kenya had looked poised to emphasise domestic revenue mobilisation as opposed to reliance on Overseas Development Assistance as a bulwark against possibilities of being compromised or arm-twisted by external forces, prompting comparatively higher targets set for Kenya Revue Authority to cater for our budgetary needs. But this requirement now threatens to overstretch limits.
Kenyans still have bitter recollection of SAPs imposed in the 1980s which by severely curtailing social expenditure, stripped the ordinary citizens of government capacity to cushion them from vagaries of prohibitively high cost of living. This is the sum of latest tax hike even as Thursday’s intervention bid by MPs was inexplicably ignored by Treasury. And yesterday a section of MPs hit back, piling pressure on Treasury Cabinet Secretary Henry Rotich, giving him 72 hours to either rescind the decision or face impeachment.
Tax targets are never easy to hit as has been witnessed in the recent financial years, partly due to our narrow tax base and limited range of taxable economic activities. The vast majority of income earners fall within the informal sector, whose activities are challenging to tax. Then there is tax evasion due to graft. But the tax burden on the vulnerable bracket is now worrisome. We must align our development and expenditure goals to our capacity and realities so that tax and spend does not become our modus operandi. The domestic and foreign debt headroom has already been hit. We must be more innovative in exploring other revenue avenues.
Kenyans are bristling with apprehension as they face sharp increase in transport, fares and the inevitable knock-on effects. And its not just the ordinary consumer. The Kenya Association of Manufacturers think the ensuing business environment will be hostile to investment and undermine the Big Four agenda.