Kenyan consumers have absorbed at least eight major increases in taxes, fees, duties and tariffs in the last two and a half years, highlighting the government’s appetite for cash amidst growing concern of the tax burden borne.
The succession of tax increases comes even as wage rises fail to match the cost of goods and services.
Levies that have been introduced and others increased include: value added tax (VAT), roads maintenance levy, construction levy, excise duty, capital gains tax, railway development levy as well as increases in water and power tariffs.
These are in additional to higher fees and charges imposed by county governments in the form of higher land rates, parking fees and business permits.
Treasury and the Kenya Revenue Authority (KRA) have been under pressure for more cash to fund a Sh2.2 trillion budget, as recurrent expenditure and debt repayment strain public coffers.
Nikhil Hira, a tax expert at Deloitte and Touche, says the quick rate at which taxes are introduced points to a number of causes which include unjustifiably high revenue targets to meet high government expenditure, a narrow tax base and evasion by some taxpayers.
“The number of new taxes being introduced is certainly not normal and probably a function of tax collections not meeting target,” he says.
“I don’t think some of these (taxes) are justified. They can be avoided if we were to widen our tax net.”
Some have argued that the extra bodies created by the 2010 Constitution as well as the financial pressure exerted by funding the counties is responsible for the increase in taxes.
Kwame Owino, the head of the Institute for Economic Affairs, however, disputes this noting that the government was still funding local authorities even under the previous Constitution.
“Before we had county government’s our budget was at about Sh1.7 trillion. Last year, the financial planning by the Cabinet secretary was at Sh2.25 trillion. An increase of Sh700 billion in taxation within three years cannot be accounted for by devolution,” he said in a recent budget forum.
Last year, President Uhuru Kenyatta placed a moratorium on new taxes, saying that any government agencies seeking to introduce a new tax or increase an existing one would have to get clearance with the Office of the President after explaining the benefit of the new tax.
“I am therefore going to insist that we have no increase in the overall government tax in the next financial year,” Mr Kenyatta said in November.
Unfortunately, this directive would have no effect on the planned introduction of VAT on petroleum products in September, which was essentially not a new tax but one that was put on ice for three years when the VAT Act was passed in 2013. The lapse of three years will see it come on-stream without any new legislation.
Treasury secretary Henry Rotich recently told the Business Daily that unless the government receives compelling reasons from Kenyans, it doesn’t intend to interfere with implementation of the tax.
Among everyday activities that could be affected by the price increase are transportation of goods to markets, running of diesel-powered machinery, operating farm machines like tractors and movement of people.
The list of taxes, fees, duties and tariffs does not reflect the entire index of charges that the government had wished to introduce as some fell by the wayside. One of the key changes that was not passed include the betterment tax on land.
Betterment tax is imposed on unearned profits that accrue to private property owners from property value appreciation in areas where new infrastructure has been developed.
Early last year, the Kenya Roads Board had written to the Treasury proposing the introduction of a floating tax and the setting of minimum pump prices of Sh80 per litre of diesel and Sh90 per litre of petrol.
This would have meant that with the fall in global crude prices, oil marketers would continue to charge fuel at the legal minimum prices, deduct their revenues as calculated by the Energy Regulatory Commission (ERC) and remit the rest as taxes.
In 2013, consultancy firm PricewaterhouseCoopers said that Kenya is among the highest taxed countries.
Mr Hira added that the many tax increases are made worse by government’s failure to fully account for the money, with a sizeable amount lost to corrupt public officers. “This is the central issue and one why many complain—we don’t see that our tax is being used properly.”