A Kenya Power technician at work. FILE PHOTO | NMG
In taxation, the principle of equality states that taxes should be fair and paid in proportion of one’s earnings. Simply put, the taxation burden should be laid as equally as possible on all classes.
The progressive tax (employed by Kenya Revenue Authority (KRA) is a good example of this. For the individual earning Sh1 million and another earning Sh40,000, the taxes levied on the initial Sh40,000 is equal for both.
Towards the end of October, the Energy Regulatory Commission (ERC) announced that it would extend the lifeline tariff from 10 Kilowatt hours (KwH) to 100KwH. The lifeline tariff has lower charges to boost affordability for the low income earners.
What was however left out of the ERC announcement is a warped policy that makes nonsense of the equality principle. Unverified sources claimed that the ERC and Kenya Power used historical (three months) consumption data to group consumers into two distinct classes of those who traditionally use less than 100 units and those who consume more than 100 units.
Those who consume less than 100 units will be charged lifeline tariff rates. Using October rates, this would be Sh15.17 per unit. The other class of consumers of over 100 units will however be charged Sh22.19 per unit. This is a difference of Sh7.02 per unit.
Ideally, and using the principle of equality, you would expect a consumer of 150 units for example to be charged Sh15.17 (the lifeline tariff) for the first 100 units and then Sh22.19 for any other amount above this.
But ERC in its wisdom decided that if you are in the class that uses more than 100 units, you will not enjoy the benefits of the lifeline tariff. All your units from zero will be charged a uniform rate (Sh22.19 in October).
Using October rates, it is estimated that 100 units under the lifeline tariff will now cost Sh1,517.
Those in the second consumption class (more than 100 units) however got a rude shock on November 1 when Sh1,500 could only get them 67 units.
This is the equivalent of KRA having two taxpayer classes where one pays 10 per cent of tax on their entire income while another pays 20 per cent on their entire income without employing any graduated scale or proportionality.
The new ERC rates reek of a dearth in creativity in crafting policy that balances economic interests, fairness, common sense and cushioning the vulnerable.
Sources indicated that sustained three-month consumption of more than or less than 100 units will see consumers moved to a different class. The irony is that families that have been consuming slightly more than 100 units will now cut excesses to fall into the lower class where they can enjoy lower rates and boost their household budgets; which is of course counter-productive for Kenya Power’s bottom line.
At a time when power production is expected to nearly double in the next few years, is it really prudent to curb power use through misguided policy? Who will absorb all that power coming on-stream?
It is only in the power sector where the more you consume of their product, the more you are charged. For any other commodity, you will get much better rates the more you buy. This is designed to encourage you to buy more and more.
The most affected by this latest ERC rates are of course the middle class who have become the punching bag for any government department that is looking to raise money. The rates come on the heels of the housing levy which is basically a tax on the middle class to build houses for the lower income classes.
The question to ERC is whether the question of fairness and equality was even discussed and when they intend to correct this anomaly. Or will it take another court case to do the sensical thing?
Tim Wahome, Kangema.
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Note: The results are not exact but very close to the actual.
