Kudos, National Assembly for averting the disaster of the planned VAT on fuel

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By David Wanjala

It was in 2013 when Value Added Tax (VAT) on petrol, diesel, kerosene, and jet fuel was first agreed thanks to a deal between Government and the International Monetary Fund (IMF). It was to come into effect after a grace period of three years, which would have been in 2016. It was however postponed to September 2018 and it was to take effect as from September 1. The uncertainty of its implications was already beginning to manifest, especially with the impending hike on commuter fares.

Were the move to take effect as scheduled, economic analysts had already warned, it could have pushed the inflation rate by over 4%. Other basic commodities and essential services such as sugar, maize flour, electricity, health products and services whose prices have been on a steady increase would have skyrocketed with the planned VAT on fuel.

In July, for instance, and as argued elsewhere in this Issue, KRA increased duty chargeable on a wide range of goods, including juice, water and beer, setting the stage for higher retail prices. Other items that are set to attract higher taxation include cigarettes, wines and spirits, which previously had a fixed excise rate. Excise tax on mobile money transactions went up to 12% from 10% while sugar confectionery and chocolate bars are attracting excise duty at the rate of Sh20 per kilogramme.

On the other hand, the Energy Regulatory Commission released a new electricity billing structure in early August that will see monthly power bills nearly double for most consumers.  Consumers of 50-kilowatt hours (kWh) of electricity per month will pay Sh1, 247 compared to the Sh691 they have been paying. Those taking over 200 units of power will be billed at Sh4, 988, up from Sh4, 106 in June.

It is difficult to fathom the extent to which the postponed 16% VAT on fuel would have disrupted the economy. We at NBM therefore take this earliest opportunity to laud the Legislature for averting the disaster, albeit temporarily. We at the same time ask the same institution to henceforth come up with ways to do away with the plan altogether. In an economy where citizens are overtaxed by a state that is extravagant, whatever the reasons IMF may have had to come up with the policy, it is not good for our economy.