The State’s decision to stop the annual tax adjustments for inflation on 31 products, including fuel, bottled water, juice and beer, is justified.
Businesses need to operate in an environment where they can make long-term planning and not one where taxes are increased annually.
The Kenya Association of Manufacturers (KAM) has repeatedly pointed out that adjusting the annual taxes has the effect of cutting demand and making the country uncompetitive.
Kenya has recently struggled to retain and attract multinational manufacturers, and therefore any move that makes the country competitive should be encouraged.
Industrialists, especially multinationals, are constantly on the hunt for bargain production locations much like they do tax havens, a trend that has seen Kenya lose firms like Schneider Electric, Colgate Palmolive and Reckitt Benckiser.
For the KRA, raising taxes at this time may prove deeply counter-productive because it could trigger an increase in non-compliance.
Some cash- or credit-squeezed taxpayers may be tempted to evade tax and re-direct the money to keep their business operations afloat.
The KRA should also be cautious of the fact that increasing taxes during times of crisis may push more economic activity into the informal sector where enforcing compliance has proved problematic worldwide.
Therefore, it does not make sense to introduce measures that will instead dent its revenue collection performance.
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Note: The results are not exact but very close to the actual.
