The government has taxed Kenyans to the limit, the Parliamentary Budget Office (PBO) has warned stating that Kenyans will start opting for alternatives including going for wood and charcoal thus reversing the country’s gains.
Increase in taxes have failed to raise more income as the elasticity of incomes to accommodate higher prices stretches thin.
Ordinary revenue as a share of Gross Domestic Product declined from about 18 per cent in 2013/14 to roughly 14 per cent in 202/21.
Over this period, income tax and Value Added Tax, which account for about 70 per cent of ordinary revenue collection, were the main drivers of the decrease in revenue collection as a share of economic activity.
PBO said going forward, the increase in prices of cooking gas, telephone and internet services is likely to influence consumer behaviour by either reduced demand or a shift to alternative, cheaper options.
“The imposition of taxes on cooking gas is extremely a frail balance where improving revenue is at the heavy expense of households’ income,” Pbo said.
“The tax may reverse gains from the objective promoting the use of clean energy in Kenya consequently households might revert to the use of firewood and charcoal which will negatively impact their health as well as the environment,” the budget office said.
The tax enhancement measures contained in the BPS 2021 such as strengthening the audit function in the Domestic Tax Department, enhanced scanning, resolution of tax disputes through alternative dispute resolution and fast-tracking the conclusion of cases before the Tax Appeal Tribunal do not address the structural issues that have contributed to the decline in revenue as a share of economic activity.
Further, the proposals contained in the Finance Act 2021 are unlikely to contribute to a significant increase in revenue as a share of GDP.