Do not just oppose fuel VAT, root out the need for controversial tax

Tuesday September 11 2018

The plan by Treasury to introduce 16 per cent tax on petroleum products delayed for two years after MPs agreed with a proposal by the Minority Whip Junet Mohamed. FILE PHOTO | NATION MEDIA GROUP


The zeal with which the elite have come out to reject the controversial value added tax (VAT) on fuel that commenced on September 1 reeks of hypocrisy.

Granted, the National Treasury is walking a tight rope. If it does away with the levy, it must get money from elsewhere to fill the gap. It may resort to contracting new borrowing, imposing taxes that are less politically unpopular to implement or choosing to implement the more inflationary methods of financing the national Budget.

Indeed, the fuel levy issue is only but a symptom of a deep-rooted problem in the country: The parlous state of government finances.

I accuse the political elite of hypocrisy; they are prepared to engage in noise and grandstanding over the fuel levy but continue to bury their heads in the sand when it comes to the real issues dragging our economy down.


It is time the political class closed ranks and confront issues that necessitated the introduction of the fuel levy in the first place.


They include ballooning taxpayer-funded salaries and allowances, brought about by the high salaries we pay to our MPs, governors, MCAs, judges, county executives, Cabinet secretaries and members of constitutional commissions that have mushroomed ever since the 2010 Constitution.

Just as they have closed ranks to oppose the fuel levy, the political elite should tackle corruption, wasteful spending, crippling revenue shortfalls and rapid accumulation of expensive and poorly negotiated commercial loans on our external debt register.

How I wish our MPs would come out to preach austerity and start making public appeals for belt-tightening while speaking strongly against the opulence and conspicuous consumption we still see in the public sector!


The parking lots of the High Court, Parliament, ministry headquarters, county government headquarters and county assemblies are filled with expensive fuel guzzlers purchased and run at the expense of the taxpayer. In rural Kenya, governors, MCAs and county executives have become nouveaux riches and are engaged in obscene opulence as if they are in a competition to determine who has built the biggest house or driving the flashiest car.

Our leaders treat public coffers as an inexhaustible largesse. The mentality is, tax and spend, even when they know it is beyond our means.

For political expediency, President Uhuru Kenyatta might rescind the fuel levy, but the economic pains will remain and continue to haunt us. In that case, the Treasury will have to go back to the drawing board in a bid to come up with a comprehensive austerity programme through a supplementary budget.


If that happens, the expected budget cuts could affect critical programmes, especially in the development budget — the consequence being massive reallocations between the budgets of ministries and across votes, even within budgets of specific departments.

Yet forcing major cuts in the development budget in the middle of the financial year also comes with other challenges and complexities.

We are bound to end up with abandoned and half-completed projects. We might find ourselves in a situation where we cannot spend a cent of the billions of shillings on projects that are co-financed by the government, bilateral donors and multilateral lenders such as the World Bank and the African Development Bank.

This is because disbursement of funds from this category of lenders usually comes with the condition that the government releases counterpart funding.

When the budgeted counterpart funds are chopped, the co-financed projects are abandoned. That is how the problem of piling pending bills starts.


Clearly, the Treasury may find itself doing a lot of cutting and pasting of the Budget that was presented before Parliament in June.

And why has the International Monetary Fund become important in our lives again? This is a pertinent question because we all know that former President Mwai Kibaki ran the economy fairly successfully with very little engagement with the IMF.

Indeed, the case can be made that Jubilee has hardly moved the growth needle or revved up output the way the Kibaki administration did.

The current circumstances remind me of recent developments in Haiti, where the prime minister was forced to resign after days of riots sparked by a plan to raise fuel taxes.


Just like us, Haiti had negotiated a deal with the IMF whose condition was dismantling of fuel subsidies.

In that case, the IMF had argued that fuel prices in the South American country were below market prices and disproportionately benefiting the well-off and preventing spending on badly needed social programmes. Ultimately, the government had to rescind the decision.

Brace yourself: We are now firmly in the hands of the IMF and the pill will be very bitter.

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