The VAT law enacted by parliament finally kicked in on Saturday, after its conception in 2013. It was delayed by three years and the parliament in 2016 further delayed its implementation by two years. Cabinet Secretary to the treasury, Henry Rotich went ahead to implement the VAT law, ignoring a parliament resolve to have the 16% VAT tax implemented after another two years, claiming the president is yet to assent to the new bill. The imposing of 16% VAT taxation on petroleum products has attracted enormous criticism from motorist and Kenyans at large. For a product that already attracts several taxes including; fuel levy, which is managed by the Kenya Roads Board, excise duty, the petroleum development levy, and petroleum regulatory levy, it remains to be the most taxed commodity.
Several factors have been attributed to the rising cost of fuel. Kenya has been experiencing huge budget deficit, registering a budget deficit of 8% in the 2017/2018 fiscal year. Such a deficit has been allied to the failure of the Kenya Revenue Authority to hit its target collections. The KRA fell short of its half-year revenue target by KSH 68 billion out of the 702.7 targeted. This made it harder for the government to balance its books and as a resolve targeted the VAT tax on petroleum products.
With the new VAT tax on fuel, the exchequer is estimated to draw an additional KSh71 billion per year.
Putting that in mind, the International Monetary Fund (IMF) has been touted to be the architect of the VAT law. IMF has been pressuring Kenya to expunge the exemption of VAT tax on petroleum products in a bid to increase the revenues and in turn reduce the budget deficit. The Kenyan government is also in between negotiations with the IMF over accessing a Sh150 billion IMF loan facility aimed at cushioning our foreign exchange reserves, with decision being made in the next few days by the IMF.
This explains the recent change in tone by President Uhuru Kenyatta, evident by the freezing of all the new projects to pave way for the finishing of the ongoing projects. This, with the new VAT tax on fuel, is unmistakably an IMF operation. Kenya has already suffered under the force of the Brettonwoods institution, having been obliged to lay off thousands of civil servants by the IMF. The IMF which has been termed as a ‘Heartless moneylender’ as far as less developed countries are concerned, has in the recent past forced such countries to adopt bad policies and sequentially the countries sink in poverty.
As providers of short term loans to countries falling in deep financial crisis, the conditionality around the loans are often adverse pursuant to the fact that the borrowers usually have little choices.
The Kenyan case is a different one. The public debt has just hit 5 trillion, for the first time owing to the upsurge in the bilateral and commercial debts. Most of the loans are used for development purpose, for instance financing the Standard Gauge Railway with a loan from our development colonizer, China. Debt sustainability has been a problem in Kenya forcing the IMF to tighten the rope on availability of loan facilities for the Kenyan government.
The common citizens will have to suffer from the mistakes of the policy makers, with the country currently experiencing a shortage in fuel. Kenyans should brace themselves for tough times ahead, with the cost-effect inflation expected to chip in with an expected rise of products and services. Making ends meet for Kenyans is going to be more tough with the fuel inflation expected to have a ripple effect across transport, agriculture, manufacturing, tourism, mining, energy and healthcare sectors.