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Mencken (1880–1956), one of America's great wits, would chuckle. Almost every pro-VAT argument is exaggerated, misleading, incomplete, or wrong. The VAT is being merchandised as an almost painless way to avoid deep spending cuts. The implicit, though often unstated, message is that a VAT could raise so much money that it could eliminate future deficits by itself. This reasoning, if embraced, would result in staggering tax burdens and exempt us from a debate that we desperately need.

Higher consumer prices from the VAT could also slow the economy. A VAT is no panacea; deficit reduction can't be painless. We'll need both spending cuts and tax increases. A VAT might be the least bad tax, though my preference is for energy taxes. But what's wrong with the simplistic VAT advocacy is that it deemphasizes spending cuts. The consequences would be unnecessarily high taxes that would weaken the economy and discriminate against the young. It would become harder for families to raise children. VAT enthusiasts need to answer two questions: What government spending would you cut first? And how high would your VAT rates go?

Robert Samuelson is also the author of The Great Inflation and Its Aftermath: The Past and Future of American Affluence and Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong. 


Mr Chairman and members of the Committee on Finance, Trade and Planning we must first appreciate the opportunity to meet with you today on a matter of such serious national importance as the VAT Bill 2013. On July 2, 2013 Cofek led a peaceful demonstration against the Bill and deposited two petitions with the Office of the President and the Office of the Speaker to the National Assembly.

Cofek is Kenya's independent, self-funded, multi-sectoral, non-political and non-profit Federation committed to consumer protection, education, research, consultancy, litigation, business assessment and rating on consumerism and customer-care issues. The Federation was successfully registered on March 26, 2010 as a membership society under Cap.108 Laws of Kenya. The Federation prides itself for working with the 10th Parliament to realize the Consumer Protection Act, 2012 which is anchored on Article 46 of the Consumer Rights as contained within the Constitution of Kenya 2010. 


  1. Summary
  2. Myths being advanced by Treasury/KRA
  3. Experiences elsewhere
  4. Specifics on the VAT Bill 2013
  5. Way Forward 


       The intention of the Bill as a tax reform measure to ease tax administration is welcome. Since VAT is levied at each stage of production, it boosts compliance because for a business to receive credit for VAT paid on its’ inputs, it must usually collect VAT on what it sells. Further, since VAT is usually charged at the same rate (16%) on almost everything, it may distort economic decisions less than an income tax, which is charged at varying rates with numerous exemptions. It, however, needs to be demonstrated and justified given there are no plans to right-size KRA staff. Timelines are also unclear. The opportunity cost need to be defined.

      The Bill is regressive as it levies additional tax burden on all essential items (previously exempted or zero-rated) which take a greater share of the income of poor households than of the non-poor households. Bottom line, the majority poor spend more of their income on consumption than the minority rich. That Bill has no single exemptions and zero ratings safe for diplomatic interests is most unfortunate and risks reversing its’ few good intentions of the Bill – which include making KRA more accountable in terms of being responsive to taxpayers within specific timelines. In its’ current form, therefore, the Bill will increase the cost of living amongst the greater population. 

      The Bill shouldn’t be looked at in isolation – since a raft of other related tax measures elsewhere (on income, consumption and production abound) will still heavily impact the very consumer. This include the fictitious ones, for instance where Water Resources Management Authority permanent levy of 5 cents has been introduced on every Kilowatt per hour – with a backlog of Sh630M for the electricity consumer to clear in 3 years. 

      The Bill introduces 16% on electricity (previously 12%), fuel, farm inputs – as such it is safe to say that a day after it is enacted, the price of all commodities will go up by a minimum 16%. Key services are not exempt i.e banking, transport, insurance, health and medicine, education (fees will go up from kindergartens to universities on the strength of higher food prices, energy and transport costs occasioned by the VAT, medical insurance, among others

      The Bill is one-sided – with an over-emphasis on the taxpayer but silent about the taxman and sanctions against his officers who aid in tax evasion and unscrupulous claims. To date no assessment, other than the consecutive missed targets for KRA, has been made on the competence and integrity of KRA. 

      Sections of the Bill borders on illegalities and contravenes Chapter 4 on the Bill of Rights especially on seizures and attaching property of defaulters such as having power over the Registrar of Lands 

      The link between over-stretched revenue collection on one hand and luxury budgets is either non-existent or too weak. 

      The Jubilee Government was elected on a platform of reducing the cost of living and sustaining the macro-economic momentum initiated by the Kibaki administration. It wasn’t on the basis of introducing free laptops for primary pupils as well as labour unrests. Related to this, it is ironical that the Bill proposes to make computers and software unaffordable while it is spending billions on the important but non-essential laptops project. This is a clear indication that Government appropriations and expenditures are disjointed. 


The Treasury and the KRA have waged a major campaign to have the Bill passed without any amendment. They are even against zero-rating maize flour and bread which Parliament seems to have unanimously agreed to retain at 0%. In so doing, a lot of propaganda and misleading statements have been released. A few examples will suffice;

1. Zero-rating and exemption of goods under the current Value Added Tax Act have mostly benefited manufacturers and suppliers and not cushioned the poor from the high food prices

True but when and how do they intend to pass such benefits, if any, to consumers? The same manufacturers of goods and suppliers of services will simply pass the additional costs to the consumer. What mechanisms do the Treasury and KRA have to rein in on them in a liberalized economy? Given that Kenya’s has one of the lowest ethical business behavior, on average, unscrupulous business-people are wetting their appetites for more profits at the expense of the consumer once the VAT law is enacted. Again, for government to confess that it has all along known where the problem is and it not fixed is to admit either conspiracy, incompetence or lack of political goodwill to realize consumer rights. It is for this reason that both Treasury and KRA for less and less public trust on this Bill. As of today, our estimation is over 95% Kenyans are opposed to the Bill. About 4 weeks, Ipsos Synovate poll rated the public opposition to the Bill at 86%. From Kapkugerwet, Kimugung to Kipchimchim in Ainamoi; from Dundori, Kabazi and Solai in Subukia and from Chetambe, Nabuyole to Ndivisi in Webuye, Kenyans opposition is the same. It is not informed by any political affiliations but by life and death issues.  

2.   Fears about the effect of passing the VAT Bill are “exaggerated” and the long-term effects of the proposed law are actually good for Kenya. The real solution to (high food) prices is not VAT but increasing the production of food items:

The National Treasury Principal Secretary will need to learn to be careful with his diction (words). Merely because he is talking for government does not preclude the relevance of the outcry of the consumer. Lest he forgets, it was not by accident that the consumer rights are part of the Constitution of Kenya 2010 and indeed come earlier at Article 46 before Article 155 which creates the position of “Principal Secretary”. It is a law Parliament and the Executive must not take for granted.

In fact, it is the Treasury’s view which is overly exaggerated as it is long on promise and short on evidence of just how “long-term” it will take for the Bll to be good for Kenya. It cannot be “good” merely because IMF says that it is a conditionality for grants and loans. In any case, the history of IMF advisories in countries like Greece have come to demonstrate how lopsided most of their desktop advisories can be.

Specific issues - How can production be enhanced if farm input costs are being made prohibitive, critical supplies are delayed by deliberate inefficiencies – so as allow cartels to cash in on unsuspecting farmers with the example of fertilizer whose quality is in question? How can production be enhanced if there is no market and government has no budget for sufficient grain reserve? How can there be enhanced production if there is no financing of research for appropriate aspects that bedevil agriculture? With the VAT Bill, the country is no longer assured to transform into a mechanized and irrigation-fed agriculture.  All these combine to defeat the Treasury theory and rhetoric around increased production as a result of the legislation.

3. The bulk of urban poor can’t afford to buy processed food and would rather buy maize and mill it. Processed food is mostly consumed by those in a higher economic class. 

It is a fallacy that Treasury can hinge itself on an outdated and defective study to make embarrassing statements on behalf of consumers. To the best of our knowledge, Treasury has no consumer affairs adviser and clearly their competence to speak for the consumer can be anyone’s guess. Even the way Treasury/KRA defines the “poor” and “poverty” could be at variance with what is known on the ground given some of convoluted and warped economic theories and pronouncements made to justify their selfish arguments. Economic theories may indeed point to some facts on paper but their reality on the ground is totally different. 

It is untrue for anyone to cite an undated defective study which claims that the proportion of processed food in household expenditure is 7 – 8 per cent. This is a pure lie. Nairobi County alone has an estimated 60% of the people who live in informal settlements – they have no cows or farms from which they could generate raw food – just how do they avoid processed food – from maize flour, milk to the rest? 

More important, the cost of fuel, electricity and transport – a key element in pricing of all foodstuffs including maize flour will be going up. Needless to mention, even if one bought their own maize, millet or sorghum among other cereals, milling is also “processing” only that it’s a small scale compared to the industrial one whose only difference is packaging. The costs of milling maize flour and transport of food will go up even it will cereal will remain zero-rated. 

4. Best way to deal with the high prices of food would be to increase competition and break the sort of cartels that have kept the price of maize flour high despite several tax breaks enjoyed by the manufacturer.

True but at 50 years old, is there any trace of the Kenya Government demonstrated attempt and commitment to increase competition and break up cartels which drive up food prices? We have seen it with artificial shortage of commodities from sugar to fuel. We have seen it with 3 Kenyan families controlling and fixing the price of maize flour. We have seen cartels buy most sugar produced locally and resale the same from the same factories at a higher price. Government has been one such challenge. From the energy sector to foodstuffs, Government is both a player and regulator - carrying out business and its’ often an interested party rendering it to a conflict of interest. This is so bad that to the extent that nearly all regulatory institutions are run as if they were departments of the Ministries.

Look at Competition Authority for instance – what efforts are there to give sufficient capacity other daily approving too many mergers which are killing competition and eventually affecting the consumer? What is the Authority going to achieve when and at what price? Who are the cartels in the mind of Treasury and KRA? It is ironical that Treasury wants to use innocent consumers as in a risky and costly economic experiment – on IMF policies which have failed elsewhere.

5. The idea behind the VAT Bill is not just to increase revenue by Sh10 billion but to increase Kenya’s competitiveness in the long-term. International independent evaluators have been repeatedly telling Kenya its business environment is not good.

The idea behind the Bill is to address the huge Budget deficit and to specifically raise Sh10B in the FY-2013/14. Looking at the Bill, however, there is nothing that would demonstrate Kenya will achieve the so-called competitiveness. There is no transition arrangements on zero-rating and exemptions. It is not even a climb down but akin to some jumping from the 16th floor to ground (zero) floor and expect the person jumping to remain unhurt? The Treasury concern seems to be what foreigners think and want for Kenya. It is not about what Kenyans expect. The National Assembly must decide where it has to have its primary loyalty – its’ own citizens or the likes of IMF. That is why those external forces have conspired with the Treasury to avoid introducing capital gains tax. Our view is please tax the poorest of the poor out of his blood but what justification is there to cushion the mega rich against taxation?


As stressed by Gemmell and Hasseldine (2012), measures intended to make the tax structure more uniform, for instance, will affect the policy gap not only directly but indirectly too, by affecting consumption patterns, and may well also narrow the compliance gap by easing control problems. Conversely, behavioral changes unrelated to VAT policy or implementation can affect the measured gaps. 

In Australia, for instance, VAT revenue has been strongly affected over the last few years by a shift of expenditure toward untaxed items that largely reflects an increase in their relative price. 

Cross-country comparisons, as the Treasury is keen to say Kenya’s VAT is lowest, are problematic when methodologies differ. In the developed world, liberals oppose a value-added tax because it falls more heavily on the poor. Conservatives oppose it because it is a money machine. 

Noncompliance for VAT ranges from 4% to 17.5% of tax owed, according to the OECD. Politically sensitive categories are often exempted or taxed at a lower rate, diluting efficiency for instance the child care in Australia, groceries in Canada, food and children's clothing in Britain. For Treasury/KRA to pretend that Kenya has no politically-sensitive categories beyond maize flour and bread is to invite political instability. 

Selling a VAT is politically tricky. Australia, Canada and New Zealand, all recent VAT-adopters, replaced an existing federal consumption tax. Perhaps with a higher VAT beckoning, there would be need to increase the lowest income tax bracket to over Sh50,000 as some MP’s had earlier said. 


  1. Against Art.10(2)(a) provisions on public participation, the VAT Bill has been kept away from stakeholder input. Central Bank of Kenya and Treasury joint communication to IMF on March 28 point to the VAT Bill being the only unfulfilled conditionality. That IMF requires a Kenyan legislation overwhelmingly opposed by majority Kenyans, as per recent Ipsos Synovate poll, raises fundamental sovereignty integrity questions as to the implications of Art.1 of the Constitution.
  2. Second, the Bill under Sec. 6(1) gives the Treasury Cabinet Secretary immense and unilateral power to “amend the rate of tax by increasing or decreasing any of the rates of tax by an amount not exceeding 25%”. The National Assembly may only disapprove, if it chooses to, within 20 days when it next sits. This loophole is bound to be abused. It needs amendments for better safeguards. Similarly under Sec. 63 the Finance Secretary has sweeping powers to make regulations for “better carrying out the provisions” without reference to consumers and other stakeholders.
  3. The Bill vests huge and unrestricted power in the Kenya Revenue Authority (KRA) Commissioner General. Frequent use of words such as “satisfied”, “believe” among others before taking major decisions and actions creates excessive discretion which ought to be curtailed.
  4. Sec. 24 allows KRA to behave as auctioneers by collecting and selling property of tax defaulters by “distress” at the expense of the Bill of Rights. Cap 526, Auctioneers Act, provides for the licensing and regulations of the business and practice of auctioneers.
  5. The VAT Bill in a nutshell makes KRA a policy maker, investigator, an enforcer, prosecutor, jury and an executioner. Sec. 49(1), for instance, grants KRA officers the power of inspection of premises without a warrant and to perform seizures. That will be legislating an illegality. An Act of Parliament cannot be inconsistent with the letter and spirit of the Constitution.
  6. Sec. 49(8) is even more daring in dismissing “(a) any law relating to privilege or the public interest … or (b) any contractual duty of confidentiality”. The dilemma is - can an Act of Parliament really purport to waive a right under the Bill of Rights in the Constitution? The answer is no.
  7. In contravention of the Lands chapter and reporting lines, Sec. 27 allows KRA to unconventionally “direct the Chief Land Registrar” that land and buildings of tax defaulters will be used as security. It again lacks clarity on the manner and circumstances which precede such “directions”.
  8. Save for an unspecified class of persons determined by KRA, every individual undertaking tax formalities shall only use electronic means. Art. 27(4) of the Constitution will find this as discrimination. Again it will prove too expensive for rural and even urban SMME and other business-starters. In any case, internet penetration and costing is most unfavourable out of Nairobi, Mombasa and other major towns.
  9. The common line within the Bill is the wrong assumption that the only target offender is the taxpayer. It curiously fails to place any single direct responsibility on its’ own officers especially on integrity issues and their own vetting and wealth declarations.

10. With compulsory online transactions, Art. 31 of the Constitution on individual privacy will no longer be guaranteed. Through a single hacking, it will be easier for a lot of private data to be illegally accessed.

11. Sec. 43 of the Bill places the responsibility of keeping records of each and every transaction for at least 5 years from the date such transaction was made. This is a cost to businesses some that have hardly no space to sit leave alone keeping huge files for such a duration.

12. The issue at the centre of the VAT Bill is as to whether or not food, medicine, farm input, sanitary towels and other essential commodities should be subjected to tax.

13. The Bill will impose 16% on special goods subject to zero rating under Schedule 8 part B which include aircrafts, parts and accessories; jet fuel, kerosene and aviation spirit, among others which will drastically increase the cost of local and international air travel and render the local airlines uncompetitive. This would result in unemployment and less revenue to government. Deceased persons effects, life-saving apparatus, passengers baggage, ships and other marine vessels, rewards earned by Kenyan sportsmen, capital equipment for electric generation, fertilizers, electrical energy imported into the country, national passports.

14.  Save for goods consigned to or purchased by the Kenya Red Cross and St. John Ambulances, many other charitable institutions will have to pay the 16% for their “business” of helping those in need and for whom Government may not have any capacity to assist. Blacklisting all civil society and NGO’s that would be granted deserving such is unwise.

15. As the Bill digs in to raid the poorest of the poor, it is mute and even dumb on taxing the bottomless pockets of the richest of the rich – through capital gains tax.

16. The offending Bill also bids farewell to tax exemption status for the disabled and physically handicapped persons.

17. As newspaper columnist Mutuma Mathiu observed elsewhere, over-taxing the poor is "… the kind of ideology-deprived decisions that an inexperienced government would make …"Possibly underestimating the impact of over-taxing basics such as food, the government will soon be staring at immediate and spiral adverse effects to other key sectors such as education, banking, transport, health and agriculture. It is akin to failing to construct cheaper public sanitary facilities and end up spending more on epidemics and lost man-hours of production because people are sick.

18. Imposing tax on basic goods on the majority poor will erode the quality of life for Kenyans and lower public confidence in the public sector reform process.

19. The largely punitive approach taken by the Bill, as opposed to nurturing a voluntary compliance perspective of incentives, and a less steeper tax regime points to a cover up of the KRA inefficiencies on revenue collection.

20. Over-stretching revenue collection measures to cater for luxury budgetary allocations without budgets cuts and shrinking the tax volumes and tax bracket is self-defeatist.

21. Attainment of Vision-2030 equally hangs in the balance as - Are the changes in the VAT towards attainment of Vision 2030.  A review of 4 of the target sectors earmarked towards attainment of Vision 2030 revealed the following;

Tourism – VAT introduced in transportation of tourist, aircrafts and their parts.

Agriculture – VAT introduced on fertilizers, agrochemicals, milk, animal feeds among others - which will impact negatively on farming. Kenya being an agricultural country, this attainment of Vision2030 may not be possible

Manufacturing – scrapping of VAT Remission, VAT on Generation sets and increase of VAT on electricity will increase cost for manufacturers and eventually passed to the final consumers. 

BPO and ICT – VAT introduced on software and computers which will make the software and computers more expensive. 


1. The Bill should not go for second reading until the public ventilates on this matter. We request the Finance Committee to plead with Parliament to allow the Committee a minimum of 3 - 6 months to consult the public at all the 47 Counties. The Bill needs to be owned by Kenyans and not international organizations such as IMF. The pressure on the Bill should be taken away from the FY-2013/14 budget deficits. Instead, austerity measures on the budget luxuries must be made.

2. The Bill could also be separated into two parts. One for the reform measures – this can be fast-tracked but the aspect on removal of exemptions and zero-rating must be subjected to further scrutiny. This would help the rushed Bill being send to the Judiciary for arbitration.

3. The Bill must not be politicized. It should never be seen and entertained as an instrument of supremacy battles between opposing political camps. Instead, both the Jubilee government and the opposition leadership must leave the Members of Parliament to vote with the own conscience after consulting their respective electorate. The people of Kipchimchim in Ainamoi and elsewhere must be allowed their view even if it may be at variance with that of their elected leaders.

4. It is unfortunate that the Attorney General’s office could display such levels of incompetence by publishing the Bill which is heavily inconsistent with the Constitution and particularly the Bill of Rights under Chapter 4. If the Bill must be debated in the form it is, and as a House of rules as we often hear, the National Assembly will be perpetuating an illegality. 

Options for Kenya on VAT Bill 

(a) Employing low tax rates for goods and services purchased primarily by the poor
(b) ‘Special taxes or high rates on luxury consumption items purchased mostly by the rich
(c) Consideration of government expenditure on safety nets such as transfers to people with
special needs, the marginalized, the elderly, for instance.