To cure fuel crisis, increasing taxes is not the only option

The steady rise in international fuel prices is causing all manner of problems to our economy and consequently making life difficult for everyone with each passing day. The Kenyan government has taken note of its residents’ plight and is implementing some bold measures in an effort to give the ordinary mwananchi the much needed shot in the arm.

Some of these measures include scrapping of duties on imported maize and proposals to remove all taxes levied on kerosene as well as reduction of taxes charged on diesel. Kerosene and diesel are the two kinds of fuel that are used extensively by most Kenyans for cooking, lighting, transportation and for industrial use.

These are welcome measures and the right way forward but unfortunately the government’s intention appears to be to increase taxes to plug the expected financial deficit. It is expected that the well-to-do and the corporate world will largely be targeted in raising the additional tax. Overburdening a few taxpayers is not necessarily the right solution particularly where there are other open avenues.

The government’s agency in charge of collection of taxes, Kenya Revenue Authority (KRA), has started initiatives aimed at enhancing revenue collections from medium sized taxpayers. This is a step in the right direction in widening the tax base, but more can be done to maximise tax revenue from this category of taxpayers.

Medium taxpayers form the bulk of taxpayers in this country and they are expected to play a pivotal role in delivery of Vision 2030. There is vast revenue potential in this class of taxpayers as well as the small taxpayers where the KRA should concentrate their efforts.

Unfortunately, KRA seems overstretched at the moment and therefore not paying enough attention to these categories of crucial taxpayers. This can be attested by the fact that resolution of tax audits or disputes is taking an inordinate amount of time to conclude, an indication that the KRA cannot chew all they are willing to bite.

This may also be explained by the increased attention paid to the large taxpayers. It is perfectly in order to take good care of the large taxpayers as they lay golden eggs but these are the taxpayers who invest heavily to ensure tax compliance and therefore do not need very close scrutiny.

There are fewer tax compliance investments made by the medium and small size taxpayers as compared to large taxpayers and obviously this increases chances of tax non-compliance.

The KRA should therefore shift their attention and concentrate on the medium and small taxpayers to further widen the tax base; enhance compliance to curb tax leakage and ultimately maximise on revenue collection.

Tax revenues have grown significantly since President Kibaki’s administration took charge in 2003. The fiscal budget for the financial year 2010/11 was one trillion shillings – the first budget that cast its eyes on such a milestone in the Kenyan history.

It is expected the fiscal year 2011/12 budget set to be presented to the parliament on 8 June 2011 will continue on the same growth trajectory. These colossal amounts will be expected to finance government’s recurrent and development expenditure as well as be used in the implementation of our new constitution.

However, we should look forward to and push for measures that will reduce government’s recurrent expenditure under the new constitution such as the stipulated leaner cabinet of secretaries. In addition, all arms of the government should avoid wastages at all costs.

It is for this reason that the news of a court decision last week to stop the Kamukunji by-election against the public interest and the alleged unaccounted billions of taxpayer’s money is alarming.

It is estimated taxpayers will lose almost Kshs 50 million in the suspended by-election. The government should ensure available funds are used efficiently for the benefit of Kenyan residents and fight wastage or misuse of funds at all levels.

The corporate world is not immune to the ramifications of the current energy costs which are driving their operating expenses through the roof. These costs are usually passed on to the consumers and this is reflected in the increasing prices and the resurgent inflation levels that have reached double digits.

Conducive environment

The government should take appropriate steps to create a conducive environment for business to thrive. Whatever happened to sourcing of cheaper fuels from Venezuela? The search for the elusive black gold in Kenya should also be stepped up following discoveries in Uganda and Tanzania as this can help in finding a long-term solution to the fuel menace. In addition, more efforts should be put into generating geothermal, wind, solar and other reliable sources of renewable energy.

This is not to forget the demand from the government to ensure there is steady supply for the country’s work force and that appropriate laws are legislated to protect our entrepreneurs and their businesses.

However, it is equally important that other factors that contribute to high cost of doing business such as poor infrastructure, corruption, insecurity are addressed adequately. If appropriate resources are available and the cost drivers brought under control, the benefits will ultimately be passed to consumers in form of affordable cost of living.

In conclusion, it is critical that the government balances its act to prevent a scenario akin to robbing Peter to pay Paul in the proposed round of tax increments. The government must grant everyone an equal chance to eke out a living without necessarily increasing taxes.

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