Treasury ought to rethink higher taxes
By PD columnist, May 10, 2022Parliament will this week seek the public’s nod on the Finance Bill, 2022, which seeks to raise more funds through taxes and also seal a Sh860 billion fiscal deficit that haunts the National Treasury.
To bridge the gap in its Sh3.3 trillion budget, the Treasury has proposed to increase excise duty on certain products by 10 per cent as part of the proposed new tax measures meant to help the government tap an additional Sh50.4 billion, in the 2022/23 fiscal year.
However, based on the expected pain to consumers, the government should look for alternative ways to cushion the mwananchi from the high cost of living that is already pushing many to the edge.
Should Parliament pass the Bill in its current form, Kenyans should brace for another round of economic pressure on account of increased taxes, which will also have a direct knock-on effect on local production.
The cost of living will soar at a time Kenyans are already reeling from inflationary pressures that started with the Covid-19 pandemic shocks, coupled with emerging supply chain challenges, and a recent surge in the cost of fuel globally.
A rapid increase in the cost of living has an unusual impact on the labour market. More taxes will weaken the purchasing power of Kenyans, who will leave less money in their pockets of Kenyans, forcing the majority of the poor to consume less, which goes back to decreased production and hence loss of jobs.
Further, increasing the prices of commodities like beer, cigarettes and cosmetics, will not only discourage investment in the industry but provide fertile grounds for smuggling of the goods and production of contrabands.
History shows that higher excise taxes shift consumption to cheaper illicit products and also make cross border smuggling an easier way for traders given that most of these commodities will be cheaper compared to Kenya.
More importantly, with suppressed demand for the excisable goods, the taxman will also miss out on the expected excise duty revenue from the same products, since consumers will give them a wide berth. The bad news is that what is contained in the proposed Finance Bill, 2022 has already been voted pending the Kenya Revenue Authority adjustment of excise duty rates.
With majority politicians already out there in the countryside seeking votes, Kenyans can only hope that Solomonic wisdom prevails, otherwise, they continue to be between a rock and a hard place.