When the International Monetary Fund (IMF) approved a $420 million (Sh35.7 billion) to Kenya’s treasury, a move designed to strengthen the shilling and tame inflation, little thought was given it seems to some of the conditions that came with the loan. It now appears that Kenyans will soon be forced to dig deeper into their already all-but empty pockets to afford basic commodities which, if the VAT Bill 2012 is approved by parliament as the IMF are insisting, will no longer be VAT exempted.

A report by Morris Aron in the ‘Today In Business’  column in The Standard (Monday June 18) reveals that one of the conditions for the loan laid down by the IMF requires that the VAT BILL 2012 be passed into law, theoretically allowing the Government to add 16 per cent VAT to the price of everyday essentials.

Paying more for milk, bread, unga and sanitary pads

The Bill, among other things, gives Kenya’s treasury the power to subject basic commodities such as milk, postal services, plasters, medical dressings, infant formula bread and sanitary pads, to VAT. Most of these items are at present either zero rated or tax exempted. This will no longer be the case if the Bill goes through.

The Government zero-rated import duty for sanitary towels in 2004 to increase the use of the products, bringing down prices of most brands by almost 50 per cent but given the implications of this Bill the prices might shoot up again.

Inflation in Kenya

Kenyans are already bearing the brunt of inflation. A loaf of bread which used to trade at Sh33 in 2011, currently goes for 47 shillings, a move that has seen many families opting for cheaper alternatives such as sweet potatoes and mandazi.

The price of unga, the main ingredient for the country’s staple food ugali, has also been increasing steadily day by day. As at December 2010, a 2Kg packet retailed between Sh60 and Sh70. By July 2011, the commodity had attained an outrageous price increase to reach Sh150 a packet and Kenyans took to the streets in protest. The price slightly reduced to an average Sh120 by the end of the same year, however, it systematically increased in January and February of this year to stand at Sh130. That’s an increase of some 100 per cent in just over 12 months and experts fear prices might go higher.

The government needs the money: Waananchi must pay the bill …

According to Rajesh Shah, a partner with PricewaterhouseCoopers (PwC), the VAT Bill will be key in instituting reforms to the country’s taxation regime: “It is expected to broaden the tax base and in turn increase revenues generated from taxation”, he said.

If and when the VAT Bill 2012 is implemented and if it is devoid of any amendments, the Kenya Forum fears that life will be more taxing for Kenyans. The country’s external debt is currently $8.961 billion (31 December 2011 estimate) compared to $8.465 billion (31 December 2010 estimate), so the Government needs the money and Mwananchi must pay.

But not our MPs …

Not everyone one will pay, however.

Just in case, you did not realize the implications of Finance Minister Njeru Githae’s move to provide a Sh 4.7 billion grant to the three arms of government when he read the budget the other day, the amount is meant to settle tax arrears that MPs’, judicial officers and military personnel owe the Kenya Revenue Authority (KRA) since the new constitution came into force. In the new constitution, all state officers are required to pay taxes but only a few MPS, preceded by Kangundo MP Johnstone Muthama, have complied.

Non-compliant MPS would have been blocked by the tax law from running for public offices in the next election but luckily for them Mr Githae has just cushioned our elected representatives against this. The worst bit of it, is that the burden again falls on the Mwananchi – the taxpayers.

Double standards

The move has elicited objections from observers who argue that it’s fraudulent to exempt the minority from paying taxes, while the majority, the common Mwananchi, remains obligated to remit their share of taxes regardless of the tough economic times.

Sighting double standards by the Government as far as managing public funds was concerned, corruption watchdog Mars Group Executive Director, Mwalimu Mati, says that equality and fairness must be exercised for all Kenyan taxpayers. “This is unacceptable when we resort to a culture where we can choose and pick what suits us best”, he said.

Well, if you are thinking that’s bad enough, perhaps we need to point out another plan by the Treasury, this time to tax rental income. This means that we could be paying more for rent if the law is enforced. (Business Daily Tuesday June 19, 2012)