VAT BILL 2012

When Ben Berananke announced the end of the Quantitative Easing by the US Federal Banks, American markets remained glittery, with Gold prices falling the lowest in nearly three years.

When The VAT Bill set to reduce tax exemptions on 395 goods and 22 categories of services plus 416 supplies of both goods and services, hit the floor of the house, it was welcomed with demonstrations outside parliament and general public rebuttal.

Although they both enjoy public vitriol, they are both necessary policies and are a roll back of government interventions in crises (American Financial Meltdown and Inflation in Kenya two years ago) which had to have a death clause sometime.

The VAT Bill which is in line with the constitution, that requires amendment of existing law on provisions of Principles on Public Finance article 201 (sharing fairly the burden of taxation) and article 210 (outlawing tax exemptions and including state officers to taxation) is supposed to save the taxpayer 1.5 billion in tax refunds that are accumulating each year in KRA as a result of the complicated framework in place at the moment.

The Battleground

Naturally this benefit does not resonate to the common mwananchi who only sees the grim picture that is being played to the public gallery. Like the American quantitative easing which is going to be gradual, the Bill is proposed to raise the said tax in three years. That will save Kenya 4.5 billion to tax the price of processed milk by 6.4 shillings a packet. Albeit we know that the common mwananchi consumes unprocessed milk which is not taxed in the first place.

Feral Hogs

In any case the common mwananchi never even benefited from the tax exemptions introduced two years ago to cushion them from inflation. Manufactures who were paying the 16% then did not reduce their prices after they were exempted but are hinting at hiking them if they are introduced. But as Richerd Fisher of the American Central bank stands steadfast that the ‘tapering’ (easing its support) will not be deterred by the ‘Feral hogs’ in the markets, our government should address the concerns that bleed the support of the Bill which are mainly mythical.

Cost Benefit Analysis

Methinks that the over emphasis of the simplification of the VAT Act currently in place should be backed down to accommodate the concerns being raised. Scrapping of the 12% tax bracket to tax everything at 16% can be reviewed to assure that some items are taxed lower than others especially those receiving wild clamor like sanitary towels and basic food commodities.

And like the quantitative easing the taxation proposal schedule can be reviewed to make it gradual instead of one violent shift that scares the tax payer, in fact this can remove the justification for our ‘Feral hogs’ to increase the prices of the basic food commodities.

Safari Rally Driver

What is important to note though is that the Bill which will ensure the President, Kenya Armed Forces, Charitable Institutions, Safari Rally Driver, Goods by aircraft operators and materials to refurbish tourist hotels join the fray of taxpayers will save Kenya billions and in fact earn it revenue it has been losing. As Max Baucus put it, Tax complexity is a tax in itself.