Opinion and Analysis
MPs must quit populist stance on VAT reforms
Posted Tuesday, July 31 2012 at 18:41
Coming at a time when the prices of most essential goods have been rising sharply, the MPs’ stand against the planned VAT reforms may be politically prudent, if not expedient.
Moreover, it is an election year and the politicians may be on the lookout for anything that rings populist in the ears of the voters.
What is perhaps not clear to the legislators is the fact that the proposed tax increases are the result of a well thought out process that ultimately came to the conclusion that doing away with the VAT exemptions would better serve the public interest.
The MPs’ cry that the tax reforms amount to the Treasury dancing to the IMF’s tune is one that does not only cheapen the critical public finance issues involved, but exhibits the lack of understanding by the MPs of their role under the current Constitution.
Apart from legislation, which is their primary role, the Constitution has given the MPs sweeping powers over public finance, including a new and critical role over budget making.
Budget making, it must be said, is a two sided affair that has an income or revenue side and expenditure side.
The state must through the Kenya Revenue Authority collect taxes to get the money it needs to spend in any financial year.
It is untenable that MPs, who have been vocal in canvassing the many areas they would like the state to spend, are now acting against a move that would lead to efficient collection of such revenue.
Phasing out the VAT exemptions as proposed by the Finance minister aims to achieve a number of things. First, it is supposed to bring clarity and simplicity to the tax regime -- ultimately making it easier for tax payers to pay up.
It also helps the taxman to seal the many loopholes that unscrupulous businesspeople use to evade taxes.
Thirdly, the exemptions have over the years culminated to a situation where KRA is getting swamped with payment of refunds, causing inefficiency in the business environment.
Though the MPs’ concern over the negative impact that charging VAT on consumer goods will have on the poor is valid, it must be weighed against the fact that it is the traders of these commodities who benefit the most from the exemptions with very little trickle down to the consumers.