Let us accept short term pain for long term gain

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BY POLYCARP IGATHE

The ‘Cost to Live’ has become unsustainable for every citizen primarily due to increases and inefficiencies in Kenya’s ‘Cost to Supply, Operate & Produce’ in all sectors of the economy. What is the cause of inefficiency and high costs operating producing and supplying within Kenya simply poor and inadequate infrastructure. Both physical and social infrastructure.

Physical infrastructure read electricity, roads, railways, river/lake waterways, ports, pipeline and oil refinery. Social infrastructure read equipped hospitals with well-paid doctors and nurses; equipped schools with well-paid teachers, tutors, lecturers and non-teaching staff; Equipped & effective security service – a motivated police service. Lastly, read well -funded public institutions as defined by the Kenyan constitution – Judiciary, Parliament, County Government, Central Government and the esteemed Constitutional commissions.

Tax revenue is the only means of financing infrastructure. How does Kenya advance and progress without investment in infrastructure effective & efficient infrastructure is the foundation to reduction and containment of spiralling ‘cost to live, produce & operate’ in Kenya. Focus on getting salaries and wages to catch up with cost to live as has always been is outright insanity. It is time to change course. It is time to contain the real fundamental factors that drive costs to live, operate, supply and produce in Kenya.

How under the sun does Kenya attain good schools, well paid teachers, well paid doctors/nurses, effective security, maintained tarmac roads, navigable rivers and lakes, irrigated farms, subsidized medicine & fertilizer, well-aired court rooms with motivated judicial officers, functional county governments etc. without paying tax?

Why the backtracking on the VAT Act 2013? And yes, true. VAT is a Very Annoying Tax. It is difficult to understand and it is a daily pain to comply with it. Many battle to understand the difference between zero rated and exempt. Yet, that is not reason enough to kill and maim the spirit and letter of VAT act 2013.

Backtracking on VAT act means continuance of a retarded economic paradigm that has taken hold in Kenya for many years – ‘Take from a few according to ability. Give to the many according to need’.

How else is Sh30 billion VAT refunds cash owed to the private sector by government explainable? Why should manufacturers carry the burden of a government subsidizing consumption that it can ill afford? The negative impact of the Sh30 billion VAT refunds quagmire must not be underestimated. The outstanding cash has crippled industry and made Kenya uncompetitive. It has stifled creation of jobs. Perhaps the only beneficiary is the banking industry who take advantage of a cash strapped private sector to at rates that are not in tandem with CBR rates and country risk rates.

Reforming VAT act is a practical albeit uncomfortable in the short term avenue to resolve VAT refund quagmire. Otherwise Kenya must accept to become a ‘supermarket’ for imported goods only and we can forget manufacturing.

Sure there is plenty that needs to be tweaked in the VAT act 2013. We must not kill pharmaceuticals manufacture in Kenya. It is unwise to place tax burden on the army who willingly give up life to defend Kenya. Airlines and Farmers perhaps must not be inconvenienced being key to tourism and food security. Tweaks to the law are attainable in constructive engagements with policy makers. Let us mute the ongoing wild and loud cries to backtrack and rewrite VAT act 2013.

And why would a citizen stand in the way of a government seeking ways and means to fund schools, constitutional commissions/institutions, roads, hospitals, security, ports, sewerages, water, electricity, judiciary, county government, police salaries, doctor salaries, nurse salaries, teacher salaries etc.

It is an established fact that only a small percentage of Kenyans pay taxes. They do so via excise duties and income taxes. Kenya has a narrow tax base. To progress the tax base must be expanded. VAT does this very effectively and fairly. Fairly because the heaviest consumers in society are the rich and wealthy. They enjoy the best security, best food, best hospitals, best doctors etc. and so it is only fair that they contribute the most as they consume via VAT. On the other hand via better VAT collection government gets more money to effect direct cash transfers to the poor and vulnerable in society to fund our beloved devolved governments and CDF.

Majority of developed economies today apply consumption tax (VAT) to fundraise for physical and social infrastructure. Biggest percentage of tax revenue in modern and developed economies is VAT. I beg, plead, and implore that we stop backtracking and allow implementation of the VAT Act.

Agreed, plenty would have been done by National Treasury as well as KRA to effect VAT ACT 2013 implementation in a better way. Communication could have done better too. Yet it is no reason to vilify and discount VAT act 2013 as bad legislation. Let us engage constructively to fill the gaps and protect the vulnerable in society without backtracking on the spirit and letter of the act.

Kenya is poised to reap major long term benefits with implementation of the VAT Act 2013.

It is short term pain for long term gain.

(Igathe is the Chairman Kenya Association of Manufacturers & Director KEPSA)

(Igathe is the Chairman, Kenya Association of Manufacturers)

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  • Ngigi mburu

    Very true we need to expand tax base

  • Njeri Mbugua

    Whilst your article is insightful, what of the government sealing loopholes ? As of yesterday there was a scandal on how the government lost money as tabled by Aden Duale.
    High taxes do not necessary translate to better living standards. My take is that the government has to show some accountability. Who audits the government by the way ?

  • Faceless

    Polycarp, you need to tell this to those shortsighted CORDless political opportunes.

    • Lipo

      We loose close to 30% of our GDP on corruption, out of the total 10m Kenyans working, only 2m are paying tax, whilst you may be expanding govt revenue by taxing consumption, this article reels of severe ass licking of the govt’s agenda, and you and Polycarp are pathetic honchos out to blame CORD for your inability to lower the cost of living in the country. As said by others, we will also consume Chinese products and shun Igathe and Uhuru’s products…

      • pigathe

        I respect all political parties in Kenya in equal measure. Every government deserves empowerment via taxation to execute its mandate. This time round it is Jubilee and next time round it maybe CORD. Both deserve to expand tax base to deliver their mandate. Sincerely accept my apologies if my article came across as pushing one side of the divide. God bless.

    • paul okech

      You miss the point in this VAT article. KRA is partyblind

  • Joseph Kiarie

    very good Polycarp. We can only develop by expanding the taxbase rather than just taxing the few salaried individuals to the bone.

  • Cerezo

    .
    Your article is shortsighted and does not hold any water. According to statistics Kenya is among the highest taxed countries in the World. I do not think you have ever ran a business. It is prudent to first look at cutting costs and then look at raising revenue. A government wage bill of over 400 Billion shillings is not healthy at all. What we want to raise from the VAT act can be raised by cutting the wage billy by only 2%. Let us work on the inefficinecies thay you mentioned. This bill and others to come will scare away investors who are the job creators. I own a business and I am rethinking my expansion plans because of the high costs of doing business in this country. Insecurity, irregular and high cost of power, poor infrastructure etc…..The ills are many yet we want to Fertilizer which is driving our agricultural sector, tourism our leading foreign income earner. Taxation is not the way forward but backwards. By the way have you ever thought who are the powers that are telling us to raise taxes? read Thursdays paper and look for the 3 letter organization and please think, think, think !!! before your right such……….

    • uhoro

      Polycap ; was CEO haco industries and now CEO Vivo Energy (Shell’s exclusive licensee in Africa). I guess now you now answers you questions or comment “I do not think you have ever ran a business.” Funny may be you need better understanding of economics

  • Bella

    Accept and move on is becoming the Kenyan philosophy EEEH!!! Im not a manufacturer but as chairman of them I feel you’re really not being objective overall. Manufacturers bear the brunt and with electricity going up Kenyans will all soon be buying from china and kariobangi industries simply because we cannot afford the ;kujenga nchi’ motto you are trying to perpetrate. At least, fight for the rights of our businesses otherwise we end up being middlemen and brokers and having no real value impact on this Great and Mighty land that is Kenya!!!!

    • SemaKweli

      Totally agree. And that is what they want us to be, consumers not producers. We have all the resources to be self sufficient but what do we do with them. Get serious Mr Igathe.

  • chris

    Higher taxes without adequate checks and balances leads to excessive wastage.

  • paul okech

    HALLO POLYCARP – I HAVE NOT SEE YOU IN MANY DAYS BUT YOUR PASSIONATE PLEASE ON VAT NEEDS REPLY FROM AN OLD FRIEND.

    OVERALL MESSAGE ON TAX – SPOT ON.
    SPECIFIC MESSAGE ON VAT: NOT CLEAR ON HOW THE POOR SHOULD SHOULDER MORE PAIN FOR A GAIN WHICH CANNOT BE GUARANTEED. WE CHANGED LEADERS BUT NO NECESSARILY VALUES IE CORRUPTION AND NON PAYMENT OF TAXES BY SOME. MEANING YOUR ARGUMENT IS BASED ON THE GOODWILL OF MAN-HERE MEANING CITIZEN AND GOVERNMENT – GOVERNMENT TO APPLY TAX REVENUE IN PRODUCTIVE SECTORS AND CITIZEN TO SUDDENLY DEVELOP FAITH -THAT IN TURN THE INVESTMENT WILL UPLIFT THE LIVES OF OTHERS.

    ALTERNATE VIEW: REVISE VAT WHERE MAJORITY ARE HURTING ASAP IN YEAR 1. REPEAT REQUEST IN YEAR 2. TO GAIN CREDIBILITY SPEND BALANCE OF YEAR 1 IN REDUCING WASTE IN GOVERNMENT( FOR EXAMPLES DO A FOCUS GROUP WITH MINISTRY ACCOUNTANTS AND INTERNAL AUDITORS AND THE SHOCK AWAITS YOU)

    SOLUTION: CROWD SOURCE AND GIVE INCENTIVES TO WHISTLE BLOWERS AND OFFER SUBSIDIZED PROFESSIONAL AUDIT, ACCOUNTING AND TAX SERVICES TO THOSE WHO REALLY WANT TO PAY TAX AND SOME LOAN ARRANGEMENTS VIA KRA TO THOSE WITH ARREARS. THE DISEASE WILL END.

    AS CHAIR OF KMA I AM OPEN TO GIVE WRITE AND PRACTICAL OPTIONS TO GOVERNMENT ESPECIALLY KRA. MAKE IT POSSIBLE

  • Claire

    I fully agree with you on one thing – that the spirit of the Act is in the right place. However, and more importantly, the spirit of those who administer the finances of this nation is usually not in the right place. There is a lot of tax that should be collected, but is not.

    KRA and the government first needs to recklessly and with impunity make an example of those who have hidden behind corruption. Why pay more tax, when a big portion of it will go into people’s pockets anyway? Guess what – we wouldn’t mind paying tax if we knew it was being used for the good of the nation.

    First order of business should be cleaning up house, saving the billions lost in corruption, before making life even more unbearable for Kenyans – both individuals and businesses.

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