alexa Target the rich and luxury items for more taxes, not unga, milk or bread - Daily Nation

Target the rich and luxury items for more taxes, not unga, milk or bread

Friday June 14 2013

By MAGESHA NGWIRI

It is unbelievable that such a young government can harbour a death-wish. Even if desperate times call for desperate measures, raising the price of maize-flour by 16 per cent can only be described as potentially suicidal.

That is what a Bill before Parliament proposes to do. It should be shot down promptly.

Apparently, the government intends to table the Value Added Tax Bill (2012), which will slap a 16 per cent levy on basic food commodities, namely unga, bread, milk and rice. On top of that, all farm inputs, which were heretofore zero-rated, will also be taxed.

Among those pushing for this measure are the new Cabinet Secretary for the National Treasury, Mr Henry Rotich, and the Kenya Revenue Commission director-general, Mr John Njiraini.

Now, these two gentlemen are quite knowledgeable in their professions, one a seasoned accountant and the other an economist of no mean repute. They have probably done their math and concluded that this country will benefit enormously should Parliament endorse this Bill in its entirely.

I am no economist, but I highly doubt that the majority of Kenyans will welcome with glee any kind of price increase in basic food items which they can hardly afford in the first place. This is not populism; it is the reality.

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Let us suppose a packet of unga costs Sh100, which seems to be the average. The majority of Kenyans — we are talking about 26 million souls — cannot afford that amount, because this is what they earn daily.

All they can afford to buy is half that amount at Sh50, and spread out the rest of their daily earnings on bus fare, cooking fat, paraffin for the stove and so on — the whole gamut of the “kadogo economy”. What is left for them to live on?

The jobless, low-income earners, and even the lower middle classes could not give a hoot whether the prices of computers, software, and even electricity went up. They will not pour into the streets if water drilling service tax or airport parking fees go through the roof. But they care deeply what their children will eat in the evening.

Granted, a 16 per cent tax on previously exempted food items will add a few more billions to the public coffers. It will also give the taxman an easier time for, apparently, he has been spending sleepless nights trying to figure out how to refund VAT to businesspeople. But at what cost?

This measure may turn out to be the costliest gaffe of this administration in terms of social unrest in the short term, and a hugely retrogressive step for the economy in the long run. When the people decide they have nothing left to lose, the consequences will be catastrophic for everyone.

Instead of pushing to the wall the majority of Kenyans who are already wallowing in the mire of deprivation, the government should explore innovative ways of soaking the super-rich and the modestly affluent for the common good.

This may sound simplistic, but it is common sense. The people least likely to revolt due to the rumbling of their empty bellies are the ones who earn a decent living. And in any case, they are a tiny minority.

Having said that, I don’t buy the argument that slapping a 16 per cent tax across the board and then seeking ways to cushion the poor through subsidies is the most efficient, or effective, thing to do. It is, actually, sheer sophistry.

Three years ago, the government came up with a hare-brained subsidy programme in which a packet of unga would sell at two different prices — one for the poor and the higher one for the rest — and what happened? Total chaos. A few plucky fellows minted millions though. Is that what we really want?

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