A raft of taxes has been proposed by the government as it moves to raise sufficient funds to run the country. This is one of the ways it can raise funds locally to fund its programmes.
As usually happens, the Treasury Cabinet secretary prepares a budget statement and then later releases a more formal document known as the Finance Bill, which MPs and Senators discuss and pass or amend as necessary.
This year, the exercise is happening earlier than in the past due to the impending General Election, some contentious proposals are contained therein.
These moves come at a time when the economy is reeling from the effects of Covid-19 and as we are wont to do in such circumstances, most people are expected to find clever ways to make a living. For individuals, there is the option to cut costs and tighten their belts.
But for businesses, there are limited options. Either you close shop, cut costs that will affect customer service or resort to illegal sources of product.
The latter response demands our urgent attention.
Often referred to as the parallel economy, the trade in illegal goods is believed to account for one-third of Kenya’s gross domestic product (GDP). Some experts believe this booming underground economy exists because the government has insufficient capacity to monitor and curtail the practice.
But there is also another thesis — that while a desire to evade paying taxes is at the heart of this economic crime, it is exacerbated by inordinately high taxation on many of the goods involved.
Unfortunately, the formal sector of the economy bears the brunt of these high taxes and the burgeoning underground economy. As the 2022 Economic Survey shows, Kenya’s retail and wholesale sector has grown tremendously and now contributes about 8.5 percent of GDP and employs nearly a quarter of a million people.
Even then, a prolonged drought, high fuel prices and the soaring cost of living have all hurt trade for retailers, who play a key role in sustaining our population.
Further, the Finance Bill 2022 threatens to squeeze them and their customers even harder.
The new or increased taxes on everyday consumer goods proposed in the Bill will drive up the prices of, among other things, fruit juices, soft drinks, alcohol, cigarettes, ice cream and beauty products, which are already high as a result of external factors such as costly crude oil prices and shortages caused by global supply chain disruptions.
Even the cost of unga is set to rise further as the tax relief granted to suppliers of maize, cassava and wheat flour will be withdrawn if the Bill is passed.
We worry that if the proposed tax increases are enacted, they will drive more people into the underground economy and negate the government’s efforts to collect more taxes. At the same time, they will deprive the formal players of much-needed revenue as consumers shift to buy from the parallel players who offer lower prices.
We need to find better ways to fund the government without this ‘double whammy’ that may exacerbate the menace of illicit trade and drive hard-up consumers to seek illegal cheaper products in the shadow economy.
But the riskiest part of these developments is the customers’ exposure to sub-standard products, over which there will be little or no control.
Health experts have previously noted that these are some of the suspected contributors to rising cases of non-communicable diseases and health issues.
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Note: The results are not exact but very close to the actual.
