NAIROBI, AUGUST 21 — The Kenya Private Sector Alliance (KEPSA) has raised concerns over the recent plans by the National Treasury to impose a 16 per cent Value Added Tax (VAT) on price of fuel, warning the move is detrimental to the economy.
According to the private sector lobby group, the move will result in an increase in inflation rate by over four per cent.
Kepsa says fuel being the main input in the country’s energy- intensive sectors, the projected rise in pump prices will result in an increase in the cost of production and manufacturing of commodities by both small and big businesses.
It will also increase the cost of transport and an increase in cost of household consumption of goods and services.
“This will also have a great impact on production and service sectors of the governments Big Four agenda. The country will not be in a position to attain the anticipated two digit GDP growth, generate jobs and create wealth as envisioned in our development blueprint,” Kepsa CEO Carole Kariuki said in a statement.
“In our opinion, the increase in cost of doing business will not only impact the local investors but also render our economy uncompetitive and repel investors who would invest directly in our economy including the Big Four opportunities,” she added.
Kepsa says while the private sector acknowledges the revenue value government receives from taxation, it also envisions a growing economy where the living standards for every Kenyan grow in tandem with the economy.
The alliance notes that the country is currently experiencing increasingly high taxation through the recent introduction of VAT on previously exempt goods, exercise duty on increased number of goods and financial transactions.
The country has a fuel levy; Railway Development Levy, Capital Gains Tax and Rental Income Tax among others.
“This trend of increasing taxes is likely to affect the gains made in the ease of doing business as a country and competitiveness of made in Kenya products both locally and in overseas markets. As a result, we are likely to witness a slowdown in business and investments, loss of jobs and a negative impact on our GDP against projections made,” Kariuki said.
According to World Bank’s Ease of Doing Business 2018 report, it is estimated that Kenyans pay an average of 37.4 per cent in taxes as a percentage of profits.
“As a country, we must strive to remain competitive in order to remain an investors destination choice, a position that we have worked hard to attain,” the Kepsa leadership said.
The lobby group has since proposed that government reconsiders the proposal to charge VAT on fuel, and instead consider pro-business strategies that strike a structural fiscal balance, address the inefficiencies with tax collections systems, and increase the tax bracket to avoid tax fatigue by a few tax payers.
“We therefore call upon the government to consult the private sector and come up with a pro-growth strategy that will help government to grow its revenue without increasing the cost of living and of doing business in the country,” Kariuki said.
National Treasury Cabinet Secretary Henry Rotich has estimated that the VAT would raise about Ksh34 billion, revenue that will go into supplementing the country’s 2018-19 budget which has bulged to Ksh3.074 trillion (US$ 30.4 billion ).
This is about a 10.83 per cent rise compared to last year’s which totaled Ksh2.77 trillion (US$27.5 billion).
A large chunk of the budget will go towards funding the functions of the national government-Ksh1.6 trillion (US$ 15.8 billion).
During his 2018-19 budget presentation, Rotich projected the fiscal deficit will narrow to 5.7 per cent of GDP in 2018/19 from the estimated 7.2 percent of GDP in the 2017-18 financial year.
Currently, super petrol is trading at an average Ksh113.73 (US$1.13) in Nairobi after the Energy Regulatory Commission reviewed the prices upwards by Ksh1.53 in its latest pricing.
The commission however reduced the prices of diesel and kerosene currently trading at Ksh102.75 (US$1.02) and Ksh84.95 (US$0.84) per litre respectively (in Nairobi).
The increase on petrol prices, ERC Director General Pavel Oimeke said, was as a result of “rising average landed cost of super petrol.”
Motorists had expected an increase of at least Ksh17 per litre (US$0.17) if the 16 per cent VAT was to be included.
The National Treasury had announced the levy would start from September 1.
Petrol has been exempted from VAT although it remains among the most taxed commodities in the country, with about 42 per cent of proceeds from the sales per litre going to the government in terms of taxes and levies.