This fuel tax carries more harm than good, Treasury CS

A fuel attendant at a Nyeri petrol station on
A fuel attendant at a Nyeri petrol station on June 15, 2015. FILE PHOTO | NMG 

As we edge closer to September, one thing is for sure; Kenyans are a worried and uneasy lot. September is the month the cost of fuel is set to shoot up to Sh131.93 per litre of petrol based on implementation of 16 per cent Value Added Tax (VAT).

The proposal to introduce VAT on fuel was part of the conditions that the International Monetary Fund (IMF) set for Kenya in exchange for a credit facility.

The plan was to expand revenue reservoirs by tapping more from a commodity that is already contributing heavily to the national government revenue kitty through other tax heads.

Motorists and farmers who heavily rely on fuel to run operations will be the worst hit.

Households that rely on kerosene for lighting and heating will also have no choice but dig deeper into their pockets or cut quantity they buy.

The rationale behind this new tax is solely to increase revenue collection for national government.

However, tax and monetary policy think tanks posit that increase in tax rates or introduction of a tax on an already taxed commodity or service does not necessarily translate to more revenue.

Such a strategy could backfire so bad that the collection could substantively plummet.

With September being a few days away, the writing is on the wall; Kenyans from all corners of the nation are crying foul over this new tax.

The matatu industry is up in arms protesting introduction of VAT on fuel. Demonstrations have been organised.

From whatever angle one looks at it, the objection by Kenyans to this new tax is justifiable.

Let’s look at the matatu industry. More than 70 per cent of Kenyans use matatus from home to work.

Should fuel prices skyrocket, the industry, whose fare charges are largely unregulated, will hit the rooftop, way beyond the range that most Kenyans can afford.

Food prices are also set to rise, especially for urban dwellers who rely on supplies from upcountry. Largescale farmers whose operations depend on automobiles will not be spared either.

This means that agriculture, one of the country’s backbones, will suffer.

While it is a brilliant idea for the government to explore additional sources of revenue to support the country’s economic foothold, extending this exploration to fuel was ill-advised.

Kenya’s untapped and unexplored sources of revenue abound.

A number of writers have published in the local dailies brilliant ideas on how the government can collect more revenue either from completely new sectors or partially explored areas.

For example, there was an excellent article published in one of the local dailies on August 22 that highlighted a great strategy, which if heeded to can fetch more from the matatu sector.

According to the article, introduction of a payroll framework for matatu operators could bring in more revenue in form of Pay As You Earn just like it is the case with other sectors.

With all these aspects in view, the government should urgently revise the planned implementation of VAT on fuel before the very economy we are striving to save goes to new low levels.