Remove Petroleum Tax and Wallow in Debts – Kenya Warned

As the debate as to whether President Uhuru Kenyatta should sign the amendment to the Finance Bill suspending the implementation of the 16 percent VAT on petroleum products rages on, experts have warned of dire consequences should he go ahead and sign it.

According to the rating agency Moody’s, Kenya might be forced to borrow up to three times its current borrowing position in order to sustain her economy if the taxes will be differed for further two years to 2020.

Kenya’s annual borrowing could hit 20 percent, an equivalent to 1.77 trillion shillings of the country’s GDP, which will further push the country’s current debt to more than 8 trillion shillings.

President Uhuru Kenyatta now seems to be between a rock and a hard place; on one hand, the country needs the 71 billion shillings that would have been raised from the fuel levy and on the other hand, the anger of the public that wants the tax dropped.

If the President will choose to yield to public pressure, according to Moody’s, would ruin the relationship between Kenya and the International Monetary Fund (IMF). IMF has been pushing the government to speed up the implementation of the 16 percent VAT on fuel as a way of widening the revenue net and cut down on debts.

The 16 percent VAT on petroleum product was enacted in 2013, given a three-year grace period before it was again suspended for two years from 2016 to 2018. Parliament has voted to have it suspended for two more years.

Kenya’s public debt now stands at approximately 5 trillion with the current budget deficit of 559 billion shillings. In February 2018, Moody’s downgraded Kenya’s credit rating from B1 to B2 with attributes on the ballooning public debt.

All eyes are now on President Uhuru Kenya. Which side will he take? Will he sign the amendment to the law? Will he take it back to parliament?