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Taxes will hamper development

04 September 2013, 15:18 Paul Orodi

“Correcting social anomalies with use of taxes is not an advisable thing...” these were the words of the man at the helm of the tax agency in Kenya, John Njiraini, some few months ago. It might not have made sense back then but Kenyans have made sense of it ever since milk prices sky rocketed to KES 55 from KES 42.

The Cabinet Secretary in charge of treasury made history by being the first non-MP to address the house when he presented the budget but he also set the record when he introduced VAT levy on all zero-rated goods commonly known as ‘basic commodities’. As if not enough, he designed the all new standard railway gauge levy that is a 1.5% tax levy on imports generally.

Since the start of the 2013/14 financial year, commodities in the market have been on a steady rise with regard to their prices. The increase in prices can be attributed to the new tax levies that have been imposed on the citizens and as a result, the cost of living has gone up tremendously.

High costs of operations attributed to the increased minimum wage have also contributed to the menace currently being witnessed.

The labour market clamored for increased wages and the president acted without hesitation when he took the podium during the Labour Day celebrations. He quickly gave in to the demands by ordering a 14% increase on minimum wage rates. Producers did what they know best by passing on the increased cost to the consumer by increasing prices.

As if not already burdened by the high cost of living, the teachers and medics took to the streets to have their salaries increased. This resulted in increased costs and that is where the whole idea of having VAT imposed on previously zero-rated goods came into existence.

Hon. Rotich, the Cabinet Secretary for Treasury, had foreseen the increased costs of operations and thus being the qualified man in macroeconomics, he quickly constituted a plan to buffer the government against the ever increasing costs by formulating the VAT bill on basic commodities.

Although things seem to be beyond correction, things can actually be salvaged when we look deeper. Kenyans’ purchasing power has been reduced significantly but all is not lost. The anticipated slowed investment cycles can actually be evaded and Kenyans can be ushered into a cheaper cost of living even in this day and age.

All that needs to be done is to revise our expenditure. The salaries of a few are imposing very heavy costs on government and thus depleting the funds available for government spending on development and investment. It is absurd to have a small fraction of state officers earning in the regions of millions of shillings yet a majority of Kenyans are sleeping hungry and cannot afford basic commodities like milk for their children.

The President and his group of economic and financial advisors need to rethink the effect that the high cost of living will have on Kenya as a preferred investment destination.

Kenyans also need to participate in investment activities in order to reduce poverty levels and increase employment rate and this cannot happen when the purchasing power of the citizens has been slashed by a great proportion.

Investors also need to invest and get quick returns so as to be enticed to increase investments in foreign lands and by the look of things, a high cost of living will do exactly the opposite. As a result of the new VAT bill, foreign investors will not be able to make sales but instead, their expenses will soar leading to low returns.

Looking back at John Njiraini’s statement immediately after the reading of the budget, he surely knew what he meant when he warned against the government’s move to increase taxes and levy new taxes on commodities.

The taxman clearly had the future in site.

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