In the past month, the Finance Minister Robinson Njeru Githae introduced into parliament a bill dabbed the VAT Bill 2012, with an intention of introducing the standard tax rate (16%) to goods which were formerly zero-rated.
Some of the items to be affected by this bill include agricultural and food items. Pesticides, insecticides, fertilizers, livestock feeds, water pumps, seeds, and gin cotton are some of the agricultural items to be affected. Milk, wheat, maize, cream and bread are the food items that would be affected on the other hand.
The bill has however been shelved in the mean time following a protest against the bill from farmers, MPs and other lobby groups. They all view the bill to be ineffective and coined for some ill motives. They see this bill as a threat to the food security in the country since it has the potential of raising food prices.
Speaking in a forum organized by ICPAK to discuss the bill, KRA Commissioner-General John Njiraini however supported the bill saying that it was meant to enlarge KRA`s tax base. He said that if the country was to achieve the vision 2030 as enshrined in that vision 2030 document, more funds were required for the provision of public services. Tapping into these zero-rated goods was one of KRA `s strategies in enlarging its tax base and thus creating more revenue avenues for the government.
Njiraini further went on to say that, the government could do better by passing the bill into law, then introduce subsidies to the poor people to enable them afford those basic commodities.
Some people have however blamed KRA for being inconsiderate by trying to meet their high revenue collection targets set for them by the treasury; by imposing economically ineffective tax policies on the citizens who are already breeding from the high cost of living.
Looking at this bill critically, I see a government that wants to commit economic suicide by swallowing a poison pill. Once it is passed into law, the bill will automatically result to a hike up in both farm input and food prices. What will follow are farmers raising the prices of their produce to off-set the tax imposed on their inputs. The higher prices will then be pushed to the citizen who already is leaving at the edge of the economic precipice. This will then be the beginning of cost push inflation.
Some farmers will also reduce their output due to high input costs. Others may as well quit farming and migrate to other investment instruments where they may feel they are not under too much VAT pressure. Some arable land may also end up being developed into real estates. All these could then result to a shortage of food supply in our economy and thus an eruption of demand pull inflation.
With high inflation and less food supply-thus a threat to our food security-you can rest assured that the government is treading on a very slippery economic floor. Probably they have good intentions for our economic growth, but a rat can always be killed using many ways. Let them look for better ways to deal with growth, but not by committing economic suicide in broad day light.
Simply put; VAT Bill 2012 should be subjected to economic-excommunication from our country`s economic policies.