For starters government sources of income among others are taxes levied on incomes from individuals and corporations, revenue from government owned corporations, capital receipts from external loans, debts from international financial institutions, fines and penalties. Speaking of taxes, Value Added Tax serves as the backbone and the most effective way of collecting government revenue. However on the flip side, it is a nightmare to many businessmen who have to put up with Electronic Tax Register machines and feed all vatable transactions in the machine. Any typical investor who has no background in taxation finds it very amorphous .The reason is simple, there is a big disconnect between taxpayers and Kenya Revenue Authority in matters of public education and winning public confidence.
One thing I learnt in taxation classes is that, any form of tax must be economical in terms of costs involved to collect it, it must also be productive and more importantly tax payers must see value for their money. When government bureaucrats siphon out taxes through corruption and dubious deals, Kenyans are not impressed hence the need to evade paying taxes which unlike tax avoidance is illegal.
Government of Kenya wants to overhaul the archaic VAT Act by putting measures meant to demystify it and tight all possible loopholes. It is in this regard that it decided to reduce about 400 items which were either zero rated or tax exempt to about 27 items. This has not gone down well with many Kenyans who think the government is not sensitive to the plight of its people by deciding to tax the so called essential commodities. Having a look at 2013-2014 national budget, government’s wisdom is based on the notion to tax virtually every sector and caution the vulnerable that is the aged, poor and disabled through subsidies. There is a theory that taxes should be targeted to those who need the services most so that they can understand and appreciate government depends on those taxes to run its affairs.
In the VAT Bill 2013, myriad of changes have been proposed starting with limit of claiming input VAT which has been reduced from 12 months to only 3 months.Electricity, diesel/oil for industrial use will now attract 16% tax from 12%. Maize flour and wheat commodities which initially were to be taxed have been withdrawn from the list following public outcry. One interesting fact is that, a majority of Kenyans do not buy processed foods, only part of the middle class and the rich do so meaning they are cautioned. VAT is targeting those who can afford though politicians and other institutions have politicised the matter . Below is a list of changes proposed in the VAT Bill 2013:
Zero rated goods to become taxable
- Computer software
- Milk and cream except unprocessed milk
- Sanitary towels and tampons
- Medical dressings
- Newspapers, journals and printed books
- Cinematographic cameras and projectors
- Writing or drawing chalk
Zero- rated services to become taxable
- Services in respect of goods in transit
- Water drilling services
- Landing and parking services provided for aircrafts
- Electrical energy to domestic households
- Services to film producers
Exempt goods to become taxable
- Helicopters and aircrafts
- Cut flowers
- Wood charcoal
Exempt services to become taxable
- Management of unit trusts or collective investments
- Postal services
- Hiring, leasing and chartering of aircrafts and helicopters including air ambulance aircrafts
- Entertainment performed by Kenyan artists
- Tour operation and travel agency services
Zero- rated goods to become exempt
- All electrical and mechanical appliances including generators
- Mosquito nets
- Kerosene type jet fuel
I hope you have been enlightened. Kulipa ushuru ni kujitegemea.