EDITORIAL: It’s time we stopped taxing ourselves dry

The newly signed Finance Act 2019 has triggered a wave of increments in the cost of several items including cars, alcoholic beverages, cigarettes among others.

For instance, prices of cars with engine capacities exceeding 1.5 litres have jumped by more than Sh1 million.

With the new law, vehicles running on petrol engines now attract excise tax of 25 percent up from the previous 20 percent while those powered by diesel are henceforth required to pay an excise duty of 35 percent compared to the previous 30 pecent, which applied on models exceeding 2.5 litres engines and 20 percent on smaller cars.

Increments are also expected on the prices of alcohol and cigarettes by at least 15 percent.

Although the State hopes to net higher revenue, the tax reviews could be counter-productive especially in an already strained economy.

Managing an economy demands for realism in terms of revenue collection targets and initiation of capital intensive projects such as infrastructure.

The Treasury should accept the reality of day and adjust its collection and spending targets to conform with the prevailing economic times.

There is no guarantee the higher taxation would automatically translate to bigger revenue collection in a limping economy such as ours.

If in any case the Kenya Revenue Authority(KRA) has consistently fallen short of collection targets and we don’t foresee any magic going by the distress in all the hitherto tax revenue rich sectors of the economy such as manufacturing.

An analysis by the World Bank showed that the structure of the economy has changed in favour of non-tax revenue rich sectors such as agriculture — which has expanded as a share the Gross Domestic Product(GDP) from 27.5 per cent in 2014 to 34.2 per cent in 2018.

But while agriculture accounts for about 34.2 per cent of nominal, its contribution to tax revenue is just about 2.6 per cent.

This contrasts with manufacturing that accounted for 7.7 per cent of nominal GDP but contributed about 18.2 per cent of tax revenue. Clearly our revenue ambitions cannot be same under these circumstances.

Let us live within our means and avoid taxing ourselves dry.