The VAT on specific petroleum products, which was the most contentious issue in the Finance Bill (2018), has finally been sorted out in the Finance Act (2018), which is an Act of Parliament.
AT on those specific products will be at the rate of 8 %. In the history of Parliamentary debates in this country, never has there been a Finance Bill whose taxation proposals generated such emotionally heated debates across the country. This was largely because of VAT.
Finally, Kenyans are waking up to tax matters. It is the Kenyan people who pay tax to the government. And the government gladly receives the tax with a promise to deliver services to the people, services that are not commensurate with the amount of tax that one pays.
Tax conscience
Every Kenyan knows about the 8 % VAT on specific petroleum products. Though the 8% VAT on specific petroleum products is expensive and painful, its imposition has managed to bring out one thing that all taxes in Kenya have been unable to do: create tax conscience.
Probably the 8 % VAT can only be equated to the poll tax during colonial times. Today, Kenyans can identify at a personal level that they are paying taxes. Previously, it was not obvious to most Kenyans that they pay VAT. Mostly because prices are VAT-inclusive at the retail level.
Today, many Kenyans know they pay VAT at the rate of 16% on most products. They also know that they pay VAT at 8% on specific petroleum products. Kenyans know the tax type, the tax rates, and the products that are subject to this tax type.
For example, the kerosene user knows they are paying more per liter of paraffin because of the additional 8 % VAT. The “boda boda” operator knows they have to increase their charges to passengers because of the 8% VAT on petrol. Tax consciousness has been created and heightened at all levels of society.
Demand accountability
This heightened tax consciousness will result in more Kenyans demanding accountability for the tax revenues from the government. A sense of ownership of the tax revenues has been created. Kenyans now have a voice to seek answers about how the tax revenues they have contributed are used.
The kerosene seller can ask their Member of County Assembly (MCA) about the tax revenues that they have contributed by paying the 8 % VAT.
The heightened tax consciousness will not only be felt in VAT but also in other types of taxes, such as domestic Excise duty, income tax, etc. This is good for the country and its people. Kenyans will guard their money jealously.
More tax revenue
The 8 % VAT will generate a lot of tax. This is because VAT is levied along the supply chain. At every stage, the value that is added is subject to VAT. This will result in higher prices and higher VAT amounts collected. VAT is a very productive tax system.
One great thing about VAT as a source of tax revenue is that it captures almost every consumer in the economy. Every single person is a consumer of one good or another that is subject to VAT. Thus, it is broad-based.
The VAT has the potential to generate more tax revenue on its own, among other benefits, than any other tax type. In the Gulf states, the only tax currently being used is VAT at the rate of 5%.
Maybe in the future, the Kenyan government will introduce a flat VAT rate of 5 % and do away with all the other taxes. The government may collect more tax revenue than it is currently doing.
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