Taxing Times for Kenyans Where It Hurts Most

The future looks bleak as taxing times for Kenyans hit them where it hurts most. For sure there are very little things that instill as much dread in the hearts of Kenyans as the proposed Finance Bill 2024. Since its tabling in the National Assembly on May 9th, 2024, Kenyans have erupted in a chorus of outrage.

Numerous individuals have shed tears over the new suggestions and introductions, fearing they will inflict more harm than benefit.

With supporting Members of Parliament emerging as poster children for these fresh tax additions upon an already burdened citizenry, their primary task is to explain to the residents why these taxes are necessary now.

Among the proposed levies making headlines is the motor vehicle tax. This Bill proposes to introduce a tax known as motor vehicle tax. This will be at the rate of two-point-five percent (2.5%) of the value of the motor vehicle. This tax will be payable at the time of issuance of insurance cover for motor vehicles.
at the core of the local populace.

Here, a punitive taxation measure was proposed to change the VAT status for the supply of ordinary bread from 0 percent (zero rated) to 16 percent, effectively increasing the cost of a 400-gram loaf of bread by approximately Sh10.

This development has left residents deeply concerned. That is because a loaf of bread is something every household relies upon for daily sustenance.
The question arises: if the authorities implement these changes, will residents calmly adjust to the new reality, and if they do, will they be comfortable with it?

At times, when such changes are introduced, we might grumble, but eventually, they pass in the National Assembly. Since the majority rules, we end up trapped in something that might not be comfortable for everyone.

The Value Added Tax, famously known as VAT, traces its roots to France. This is where it was first introduced in 1954 by French economist Maurice Lauré. He was the Joint Director of the French Tax Authority at the time.

Lauré designed the VAT system to replace the existing cascade tax system. The cascade tax system caused tax-on-tax and led to inefficiencies and distortions in pricing.

Well, this introduction’s main aim was to eliminate inefficiencies and distortions in pricing. The end goal was not to harm the end user, who in this case is Kenya’s residents.

Let us consider a scenario where VAT’s introduction caused major disruptions rather than the intended benefits.

The government introduced VAT in Zimbabwe on January 1, 2004, to replace sales tax, and the effects were severe. Zimbabwe’s introduction of VAT in 2004 faced significant implementation challenges.

This was due to economic instability, hyperinflation, and a lack of administrative capacity. This exacerbated the existing economic difficulties, and compliance was initially low.

Or consider the case of Greece. During the European debt crisis from 2009 to the early 2010s, Greece had to increase its VAT rates. It increased multiple times as part of austerity measures imposed by international creditors.

This led to widespread economic hardship, protests, and a significant impact on consumer spending and businesses.

The instances can continue, but the outcome is usually the same: resistance and dissatisfaction from the masses.

What do these governments fail to understand, or what are they getting wrong?

A certain way to comprehend how residents will feel about these implementations is through engaging with them and understanding their pain points.

We understand that a country like Kenya depends on tax to function smoothly and VAT is part of that, but to what extent can we strike a balance between overtaxing and undertaking?

One suggestion is to conduct a comprehensive public opinion campaign and consult with the masses to garner their perspectives before introducing new measures. By engaging with residents, the government will understand which direction to take and how to effectively tax without harming the economy.

Partnering with a reputable market research company with the ability to conduct such studies across the entire country is crucial. Research 8020 Limited is a perfect partner for executing this.

With the Finance Bill 2024 still tabled in the National Assembly, one thing is clear: thorough research is needed to find a balance that will ensure the government wins and the residents do not lose.

Until then, Kenyans must wait and see if any revisions will be made to address the current uproar. The dire consequences of the proposed measures seem all too apparent to those they will impact most regardless.