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VAT Bill might result in slowed economic devt

07 August 2013, 14:09 Paul Orodi

The now famous bill purported to levy taxes on basic commodities has become the center of talk for many industry and market players. Many opinions have been voiced and the government has already taken its stand on the so-called VAT bill.

With the introduction of VAT levy on basic goods, Kenyans might experience an increase in cost of basic commodities especially household goods. This is because as things stand, producers and manufacturers are not ready and willing to digest that cost on behalf of consumers. Most of the manufacturers and producers in the market have already declared this publicly and thus there is no need for speculation on the future prices of commodities since the bill has already sailed through.

Reduced disposable income

VAT levy on goods simply means an increased cost of production and consequently since it is passable to the consumers, suppliers of commodities are more than prepared to do exactly that. This means that goods in the market will be subjected to increase of prices resulting in consumers either cutting down on luxury goods or suffering the possibility of reduced disposable income.

The government intends to levy this tax code on commodities that are vital to the sustainability of the country’s environment and economy. VAT levy will automatically slow economic growth since investors and producers will cut down on their investment and growth strategies in order to study the intended growth route of the government. This will be necessary because they would not want to enter into waters that can actually drown their funds and capital.

Due to the slow movement of investors and producers, the economic growth rate will slow tremendously. It is also highly likely that employment rate will slow down since most employers will want to cut down on increased costs of production that will arise from the VAT either directly or indirectly.

One can argue out that the VAT levy will increase government's revenue and they would be absolutely right but the question is; at what cost? 

Increasing revenue comes at a cost and as for this one; the cost will be long term slowed growth of the economy. Well then, is it really worth going that route when we can simply apply austerity measures and still achieve the same result at a cheaper cost?

Looking on to the environment, our forest cover is a paltry 2% of the entire Kenyan land. This is substantially low considering the fact that forest cover should be at an average of 10%.

How then does VAT come in?

VAT will be levied on goods like gas and kerosene and with this turn of events, costs of these products will increase with a great margin. As a result, Kenyans will look for cheaper means of generating energy and thus shift focus to the charcoal and firewood sectors.

A shift to the firewood and charcoal sectors automatically translates to increased forest degradation. Producers of charcoal will want to meet the increasing demand of their products by intensifying production of the commodity thus resulting in deforestation. These activities translate to erasion of all the efforts put in the conservation of forests and other natural resources that relate to good forest cover like water and good climate.

Another effect will be increased pollution due to the decreased forest cover and increased charcoal burning.

Looking at all these one asks; is it worth levying VAT on basic commodities as compared to employing austerity measures? Do the math!

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