PRESS STATEMENT WITH REGARD TO THE IMPACT OF VAT ON PETROLEUM FUELSSeptember 3, 2018
KENYA NATIONAL CHAMBER OF COMMERCE & INDUSTRY TO HOST AFRICA CHAMBER LEADERS IN NAIROBIOctober 15, 2018
The Kenya National Chamber of Commerce & Industry would like to express its concern with the imposition of a 16% Value Added Tax on petroleum products. At KNCCI we believe that the recent resurgence of the economy will be negatively impacted by this move and this will reverse any growth we have seen in the past year.
There is a general pessimism amongst businesses as increases in fuel prices have an inflationary effect that results in an increase of everyday prices. This will further hurt the growth of the manufacturing sector is leading to a slowdown as production costs will definitely rise with the VAT.
As the business community, we are asking the government to re-think its options for financing its development and recurrent expenditure instead of overtaxing various products that already bear large tax burdens. Touching on Petroleum products the VAT will create a catastrophic spiral effect on all prices since practically every product has a transport component in the pricing.
We suggest the following strategic measures to be implemented to address this issue.
- Increasing the tax base: Currently KRA is collecting from less than 17% potential taxpayers with only 3.2 million Kenyans having filed their returns. KRA should widen this tax base to over 50% compliance.
- More importantly the government must curb its public spending and reduce wastages which would lead to the economy saving hundreds of billions yearly. The government should focus on reducing its bloated administration by eliminating unnecessary positions. KNCCI is of the view that the government needs to merge parastatals to reduce costs and increase efficiency as well as review the administration positions in county governments. We highly advocate for the Kenyan government to manage a ratio of less than 30% of its recurrent expenditures to total budget.
- Furthermore, corruption remains to be a thorn in the flesh of tax paying Kenyans, who continue to witness their money being lost in numerous schemes, many of which have being covered extensively. According to the Ethics and Anti-Corruption Commission, in 2016 Kenya loses ⅓ of its national budget to theft and wastage every year. As the business community, time has come to say enough is enough and action must be taken to recover lost monies and halt any further bleeding. The chamber proposes stringent laws and regulations to prosecute corrupt individuals with longer jail terms and stiff penalties to deter any potential acts of corruption. To this end, we laud the ongoing efforts by the President to tackle corruption and we would like to assure him that he has our full support. Parliament should propose amendments to the penal code to make corruption cases un-bailable.
We further offer the following recommendations:
- Incentivize SMEs: The government should invest more in the provision of utilities and infrastructures that are beneficial to the private sector and are productive to facilitate more business. In particular, the high costs of electricity, fuel and business licenses need to be addressed to allow the private sector to grow by eliminating high operational costs.
- Ring-fence the Informal Sector: The government should focus on promoting the informal sector and providing them with better access to domestic and foreign markets so as to empower the largest single employment sector in the country.
- Reduce Value Added Taxes: The government should reduce the number and percentages of VATs on goods within the country to attract external investors, to improve competitiveness for businesses and to lower the cost of goods for people.
- Clear Domestic Debt: The government must repay the approximately Kshs.220 billion owed to local suppliers. The payment to local firms is key to injecting the required liquidity into the private sector and acts to spur economic growth. Of the debt owed by GoK to contractors, 30% is the corporation tax payable to GoK that brings the 70 billion under collection by KRA.
- Government should consider netting VAT refunds with debts it owes to its suppliers. Many businesses have been forced to seek credit facilities to settle VAT debts when the same government owes them huge sums from which the tax emanates.
- We further do urge the government to call for a national economic conference bringing together participants from both the public and private sector to discuss the state of the economy. This is in line with the constitutional requirement for public participation.