Introduction
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
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(Photo by Waka)
VAT 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 emotional heated debates across the country. This was largely because of VAT.
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Finally, Kenyans are waking up to matters tax. 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 to 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 polls tax during the colonial times. Today, Kenyans can identify at a personal level with the fact that they are paying taxes. Previously, it was not obvious to the majority of Kenyans that they pay VAT. Mostly because prices are VAT inclusive at the retail level.
Today, many Kenyans know they are paying VAT at the rate of 16 % for most products. They also know that they are paying VAT at the rate of 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 litre of paraffin because of the additional 8 % VAT. The “boda boda” operator knows that they have to increase the charges to their passenger because of 8 % VAT on petrol. Tax conscience has been created and heightened in all levels of society.
Demand accountability
This heightened tax conscience will result in more Kenyans demanding for accountability of the tax revenues by the government. A sense of ownership of the tax revenues has been created. Kenyans now have a voice to seek answers regarding the use of the tax revenues that they have contributed.
The kerosene seller can ask their Member of County Assembly (MCA) about the tax revenues which they have contributed by paying the 8 % VAT.
The heightened tax conscience 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 subjected 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 other that are 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 that is being used currently is VAT at the rate of 5 %.
Maybe in future, the Kenya 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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Disclaimer
This post is for general overview and guidance and does not in any way amount to professional advice. Hence, www.taxkenya.com, its owner or associates do not take any responsibility for results of any action taken on the basis of the information in this post or for any errors or omissions. Kenyan taxpayers must always rely on the most current information from KRA. Tax industry in Kenya is very dynamic.
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