Articles

The Pain of Progress? Kenyans Brace for VAT Hike

By Treezer Michelle Atieno

The proposed increase in Kenya’s Value-Added Tax (VAT) from 14% to 22% has sparked significant concern among the public and various experts. This tax hike, defended by President William Ruto as necessary for economic stability, is expected to impose crippling hardships on Kenyan citizens, especially the economically vulnerable.

One of the most immediate effects of the VAT increase will be a rise in the cost of living. VAT is a consumption tax applied to a broad range of goods and services, which means that almost every purchase made by consumers will become more expensive. This price hike will disproportionately impact low-income households, who spend portions of their income on basic necessities like food, transportation, and healthcare. For these families, the increase from 14% to 22% could force them to make difficult choices between essential needs.

Economists warn that this tax hike could lead to inflationary pressures in Kenya’s economy. As businesses pass on the higher tax costs to consumers, the overall price level of goods and services is likely to rise. This inflationary effect could erode consumers’ purchasing power, further straining household budgets already stretched to the breaking point by the economic aftershocks of the COVID-19 pandemic, the recent droughts, and the countrywide floods from which Kenyans are still recovering.

Moreover, the VAT increase will impact small and medium-sized enterprises (SMEs). These businesses often operate on thin profit margins and struggle to absorb the additional tax burden, forcing them to increase prices, reduce their workforce, or even shut down if they cannot remain profitable, leading to job losses and reduced economic activity, compounding the difficulties faced by ordinary Kenyans.

Tax experts have also criticized the government’s lack of transparency and accountability regarding the utilization of tax revenues. There is growing public frustration about how previous tax collections have been managed, with many feeling that there have been insufficient improvements in public services and infrastructure despite higher taxes. This sentiment is echoed by experts who argue that without clear plans and effective measures to ensure efficient use of the additional revenue, the public may not see the benefits of the tax increase, leading to widespread discontent.

Furthermore, the timing of the tax hike is problematic. Kenya is still recovering from the economic disruptions caused by the pandemic, and the agricultural sector, a pillar of the economy, has only recently begun to rebound after years of drought. A higher VAT could stifle this recovery by reducing consumer spending and increasing operational costs for farmers and other businesses within the supply chain.

While President Ruto argues that the tax increase is necessary to stabilize the country’s finances and support development projects under Vision 2030, the immediate pain felt by citizens could undermine public support for these long-term goals. As tax expert John Njau noted, “Before asking citizens to shoulder a heavier tax burden, the government must first demonstrate accountability and efficiency in using the current tax revenues.”

The proposed VAT increase presents a dilemma for Kenya. While the government seeks to address economic challenges, the potential consequences for citizens and businesses raise serious concerns, and finding a more balanced approach ensures both fiscal responsibility and public well-being is crucial.

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