Kenya News: An analysis conducted by the World Bank shows that President Uhuru Kenyatta’s decision to increases Value Added Tax (VAT) and excise duty will cause many Kenyans to further drift into poverty.
Introduced by the Treasury through the Finance Act, 2018, the new taxes include the hugely unpopular 8 per cent VAT on petroleum products, which many experts warned will lead to a further increase in the cost of living.
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And now according to the World Bank, the poverty levels increase by 5 percentage points after the increase in VAT is accounted for.
According to the World Bank, excise taxes, which generate only half of the revenue that VAT generates, have similar effects on inequality and poverty.
Kenya News: Excise taxes increase poverty by one percentage points.
Although the government’s decision to increase VAT on petroleum products – initially meant to be 50 per cent until a public outcry forced the President’s hand- has the potential to increase poverty levels in the country, policy makers might have tried to counter this by zero-rating consumption tax on food products such as maize.
Breaking news Kenya: The World Bank noted that zero-rating such food items has a more positive impact on the poor than on the rich.
However, the international financier is concerned that too many tax exemptions and zero-ratings have seen the country’s share of VAT as fraction of total revenue fall behind other countries in the low and middle-income countries. In such countries, VAT accounts for at least 60 per cent of revenue collected.
Kenya news: According to the report, Kenya increased the number of VAT exempt categories to 30, which resultedin the loss of tax revenue of approximately two per cent of the GDP in 2015.