16 Percent VAT Tax More Painful to the Poor than the Rich

Kenya is vastly an unequal society and a change on the least progressive tax, the Value Added Tax (VAT) or the excise duty is more painful to the poor and majority of the low-income earners than their counterparts.

VAT is a tax charged on things that you buy, that is goods and services. Essentially it is a certain amount which is added on to any price of goods or service which you are purchasing, which is 16 percent in Kenya.

During the 2018/2019 budget, some of the zero-rated products including fish processors, bottled water, hospital raw materials like clothing and pharmaceutical manufacturing, milk, maize flour among others were moved to VAT exempt.

Also, the government decided to impose the 16 percent VAT on fuel to cover some of the seemingly worsening debt situations in Kenya. The issue has become highly controversial as it has sparked a spontaneous increase in transport across the country.

The public outcry comes more from the low-income earners. Majority of Kenyan citizens are unemployed and many of them live below the poverty line. The increase in fuel tax and the paying more for goods and services only worsens their cost of living.

For one, the poor have less to no disposable income at any given time. What this means is that they spend more than the rich. It is confusing, that bit is true, but because they spend almost and sometimes everything they have, they cannot be compared to those with high incomes.

Picture this, the poor will spend their income and after meeting all their basic needs, they are hardly left with any money. Sometimes they even spend the whole amount. This means that the taxes are imposed on their basic needs. A poor person without a car, for instance, may sleep hungry just to pay taxes, whereas a wealthy family may go without their vehicle for taxes.

Kenya’s appetite for foreign borrowing has driven the state into relying on the poor to make a lion’s share of the revenue. It is now relying on taxes such as corporate, VAT, and excise duty – which was apparently increased but suspended by the court when companies had already affected the change.

Increase in these taxes will do nothing to stop inequality. If anything, it will make it worse. The rise in fuel prices, for example, further worsens the already hiked food prices, makes business unhealthy, increases housing cost, transport rates as well as the cost of medical care, all which the common Kenyan relies on.

Clearly, something here is being ignored by the government. The effect of VAT on the population is catastrophic to the economy. Because the cost of living will be unaffordable and highly unsustainable, the unemployment rate is bound to increase, poverty will follow, and crime rates will also be on the rise.

The situation is dire, and the best recommendation is for the taxes to be amended, standardized, a zero-rate majority of the basic foods and services, and most importantly, give support to the Small and Medium Enterprises to allow the poor to better their living! Perhaps then, the cost of living and inequality in the society will not become too heavy of a burden to bear.