Let us accept short term pain for long term gain



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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