September 1 was the designate date that the implementation of 16 per cent VAT on petroleum products took effect, more than five years after the value addition tax law was amended.
Despite National Assembly amending the Finance Bill, pushing back its implementation for another two two years, the Treasury has remained adamant that the tax must take effect, implicitly blinded to the fact that this consumption tax is regressive — it’s the poor who will bear the heaviest burden.
High VAT regime has proven to be regressive everywhere they have been implemented, and appear to become more for developing economies, and Kenyans are now questioning whether the Treasury and KRA exist to respond to the demands of IMF and not domestic concerns over progressive taxation.
The Treasury expects to collect Sh71 billion out of this tax. But, has KRA exhausted all its options in trying to expand the revenue base?
Going by recent headlines there seems to be a rampant tax evasion and fraud that can easily plug that hole of the Sh71 billion Treasury expects from this VAT.
Last month, detectives unearthed a tax evasion racket that is said to have cost the public Sh100 billion in just six months at the port of Mombasa.
Officials were colluding with unscrupulous traders to facilitate entry of counterfeit goods as well as facilitate false declarations to deny KRA requisite taxes.
It would, therefore, be right to conclude that KRA was denied approximately Sh200 billion in taxes last year in just one racket.
In April this year, a businessman was charged in court for evading taxes estimated to be over Sh15 billion.
Last week, the Deputy Chief Justice was accused of evading Sh58,000 in a string of stamp duty payments in 2013 and 2014 but was cleared with a certificate of tax compliance two years later when she was being vetted for the position.
This means that there is probably a lot of small amounts of taxes evaded out there despite the KRA issuing compliance certificates.
Now, the DCJ’s case also seems to bring up an issue about how KRA intends to collect such taxes, it seems to be going for a longer route on small-time offenders.
At what point did the DCJ case move from KRA to the DCI ending up DPP’s desk because for an amount of Sh58000 owed by a high-ranking public official, the KRA ought to have drawn civil penalties then go after her pay slip.
If the DCJ would feel aggrieved and wished to challenge the taxman, there is the tax tribunal established for this purpose.
Criminal prosecution for small-time offenders works in the developed economies because their social cost is low due to manageable small-time offenders.
For us, we have tens of thousands if not millions of small-time offenders and the full social costs; cost of arrests, use of public resources, arrest record, burdening arrestees with lost income will be expensive to both the tax collector and payer ultimately discouraging tax adherence.
Second, there is also rising cases of tax evasion underpinning the reality that taxpayers’ feel their fiscal-social contract with government has failed.
I have noted at least five stories on social media where individuals claim negotiating with a tax collector to undervalue owed taxes.
This means individuals are willing to take the risk of evading tax – breaking the law, in order to grant themselves a tax discount and, implicitly so, direct their resources towards the ends of their needs that government probably has failed to provide in form of public goods.
Therefore, there is a need for the government to enhance transparency and accountability on the use of taxes to increase public confidence in that fiscal-social contract.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
