, NAIROBI, Kenya, Sep 4 – CORD leader Raila Odinga has urged the government to lower Value Added Tax (VAT) from 16 to 14 percent and widen the tax base as a way of encouraging consumption and spending.
Odinga told a news conference that the government’s move to raise VAT would be a burden on the public, warning that without the necessary supporting mechanisms, the taxman will be denied the money sought.
“The most logical approach is cut down on public expenditure, expand the tax base and reduce the tax burden of the ordinary citizen while supporting the livelihood of vulnerable groups through social safety nets,” said the former PM.
“In fact, with the depression our economy is going through, this was the time to lower VAT from 16 percent to 14 percent to encourage consumption and spending,” he said.
VAT is a multi-stage consumption tax that is applied to the sale of goods and services at all stages of the production and distribution chain.
The law brings into the tax bracket items that were previously VAT-exempt or zero-rated including milk, books, fertiliser and cooking gas as the government tries to increase revenue collections.
The Bill was signed into law by President Uhuru Kenyatta in mid-August and in a Friday gazette notice, National Treasury Secretary Henry Rotich said the implementation of the Act had commenced.
Initially the National Treasury had hoped to raise Sh10 billion through the revision of the VAT Act. Though the initial list of goods that would be subject to VAT included maize and wheat flour, sanitary pads and processed milk and rice, some of these items were deemed too essential and struck off the list.
KRA recently said that it is yet to determine the full impact of striking these items off the list of items to be levied VAT but it was unlikely to lead to a huge deviation from the Sh10 billion target.
The new VAT law, said the former premier, is going to hit the ICT, banking and mobile telephony sector hard due to the expected chain reaction in prices increases will follow as costs of increase and those who offer services to make to make the economy run put up their cost as well.
“Government investment in this strategy would produce better results in short and long run that engaging in the punitive exercise of punishing the poor and vulnerable when the VAT is increased across the broad. In fact, we fear the increase in VAT may lead to failure by the government to meet its target in revenue as people cut down on consumption because they cannot afford,” he said.
Odinga said the law will hurt the youth who dominate start-up businesses and the unemployed, as well as cut off the digital economy penetration.
He said the youth are going to be hit hardest by an increase in mobile phone, computers and computer software prices.
The opposition leader said the national and county government must continue to invest infrastructure so as to integrate the economy and stimulate growth.
“Let us not forget the basic issues of poverty that still face us and the need to pay attention to basic needs,” Odinga said. “We don’t agree that you can grow an economy simply by taking money from consumers.”