KISERO: Government will have to make many unpopular decisions - Daily Nation

Government will have to make many unpopular decisions, especially on tax

Tuesday June 18 2013


By JAINDI KISERO [email protected]

President Uhuru Kenyatta has had to come out to make difficult but potentially very unpopular decisions. The other day, he came out openly to oppose the MPs who were agitating for higher salaries.

On the issue of who between the Senate and National Assembly should have the last word on the size of the budget for county governments, he has taken sides with the National Assembly.

Last week, Finance Cabinet Secretary Henry Rotich announced that the government intended to push through with the highly unpopular Value Added Tax.

The Capital Gains Tax is also going to be politically unpopular. Then there is the new green tax on all goods imported into Kenya which will be used to fund the proposed railway levy.

I don’t agree with those who argue that the new administration is committing political suicide by taking unpopular decisions. There is a very big difference between what is popular and what makes economic sense.

Isn’t it time the country’s leadership started taking decisions which, although painful right now, will gradually shift this economy so that consumption can be paid for by production?

When you compare the size of the budget presented by Mr Rotich last week with previous ones, the impression is that the size is much bigger.

The truth is that government spending has not increased substantially over the years. It’s just that more has to be spent on wages, interest and pensions.

I support the idea of tweaking Value Added Tax. The current VAT regime is dysfunctional. That is why we have ended up with a huge backlog of refunds.

By all means, let us make sure that we cushion consumers from the impact of eliminating exemptions. But we must reduce the list of exemptions and zero-rated goods to the barest minimum.

On the new railway levy, my views are the following. As a society, we have developed a huge appetite for luxury goods as never before. We bring in luxury cars from and Europe and suits, shirts and bedding material from Turkey and India.

In most offices in Nairobi, most of the furniture we use is imported from Turkey and Dubai. Looking at Nairobi from the air today, the whole place looks like one huge and expansive construction site.

We import furniture and kitchen fittings from Dubai and Turkey and curtains from Singapore. We even import apples, oranges and canned food from South Africa.

The new tax should serve to tame some of the appetite for consuming imported luxury goods.

President Kenyatta must expect stiff opposition against Capital Gains Tax especially from property developers and those who mint billions from investing in capital and money markets.

It is an open secret that these two sectors have recently emerged as the major tax shelters for the super-rich in Kenya.

The joke within high society is that when you make big money these days and you want to hide from the taxman, you stash it away in trusts and other vehicles offering undisclosed beneficial ownership services in places like Mauritius and Dubai.

From that safe location, you can bring the money back to Kenya and speculate with it in either property, capital markets or foreign exchange markets by posing as a foreign investor.

The super-rich will be the first to grumble about Capital Gains Tax. They will advance self-serving arguments that the new tax is likely to drive foreign investors from our “thriving” capital markets, and how it is going to kill the booming property industry.

I like the fact that we are gradually moving away from reliance on direct taxes. Salaried workers, especially the low- and middle-income classes, are overtaxed.

But not so the super-rich who earn various forms of investment income, prepare their own tax returns and take advantage of the many loopholes and shelters in our tax system, the salaried worker in this country has to give up his income to the taxman whether he likes it or not.