Thursday, June 20, 2013

State targets cash transfers to ease VAT Bill impact

  Principal Secretary nominee for National treasury Kamau Thugge being vetted by the Finance Planning and Trade comittee on June 19, 2013 at Continental House. Photo/JENNIFER MUIRURI
Principal Secretary nominee for National treasury Kamau Thugge being vetted by the Finance Planning and Trade comittee on June 19, 2013 at Continental House. Photo/JENNIFER MUIRURI  
By EDWIN MUTAI

Posted  Wednesday, June 19  2013 at  21:22
The Treasury will increase subsidies to the poor following expected changes in taxation laws that will make basic commodities more expensive.
Treasury Principal Secretary nominee Kamau Thuge said amendments to the Value Added Tax were necessary to enhance revenue collection and to alleviate the national debt burden.
“We need thorough consultations with this House and stakeholders to look at ways to get tax from unga (maize meal) and provide food subsidies to the poor through provision of tax stamps like is the case in the US for example,” Dr Thuge said on Wednesday during his vetting by the Finance, Planning and Trade Committee.
Dr Thuge said there was a potential of price increases with the removal of tax waivers on certain commodities but this would be addressed through what he called “better ways to target the poor.”
Dr Thuge’s stance is a virtual confirmation that the VAT (Amendments) Bill 2012 will be presented to Parliament as it was despite disquiet from consumer organisations, farmers and legislators over its effect on food prices and those of other commodities.
The Bill intends to remove tax exemptions on basic commodities such as maize flour, wheat flour, rice, bread and processed milk, effectively imposing a 16 per cent Value Added Tax on them.
The Bill, which was shelved in the Tenth Parliament, also seeks to remove VAT exclusions on sanitary towels, newspapers, journals and periodicals, water drilling services, landing and parking services for aircraft and domestic electricity.
"We need to target more subsidies, expand funds transfers to the elderly and vulnerable groups as we embark on the VAT reforms,” he added.
Dr Thuge, however, said the changes should not lead to price increases because manufacturers were not passing on the tax exemption benefits to consumers.
“The experience has been that if we zero-rate an item, there has not been a time when the prices went down. The relief that was intended to be passed to the consumer went instead to helping manufacturers post profits,” said Dr Thuge.
However, Kenya has had little success with subsidies in the food and fertiliser sector where parallel market create room for profiteering by middlemen.
An experiment with dual prices for maize flour flopped in 2008 because of poor distribution.
In the budget for the 2013/4 Treasury has proposed to double the number of the elderly, people living with disabilities, orphans and vulnerable children enjoying cash transfers to 457,400 households at a cost of Sh12.3 billion. Another Sh356 million was allocated for the urban food subsidy.
He said the changes would strengthen mechanisms for raising revenue to meet budget deficit which now stands at Sh230 billion.
“We need to avoid more debt which will in the long ran be unsustainable,” he said.
Parliament interrogated Dr Thuge and 25 others through relevant committees. It will make recommendations to the House for approval before the principal secretaries are appointed by President Uhuru Kenyatta.
Treasury Secretary Henry Rotich told the Budget and Appropriations Committee last week that there were revenue leaks in the 1989 VAT Act which the changes intended to seal.
Among them is the handling of tax refunds which have accumulated to Sh29 billion because the Kenya Revenue Authority (KRA) had little capacity to verify them.
“This is increasing the cost of doing business and affecting competitiveness of those businesses which have to borrow from commercial banks at higher interest rates yet they have tax refunds from KRA,” Mr Rotich said.
Dr Thuge proposed that measures to address the cost of doing business and promote foreign investments be put in place to spur growth.
“We also need to address issues of governance in order to plug wastage of resources and increase efficiency,” Dr Thuge said, saying the VAT Bill was not being pushed by donors.
Mr Lang’at had questioned the high level of domestic debt brought about by Treasury budget deficit and sought to know how the ministry intends to raise the deficit.
"Looking at the budget, the debt burden is growing fast. The domestic component will have a crowding out effect and treasury is slowly pushing us there,” said Jonathan Lelelit, the Samburu West MP.#
Domestic borrowing stood at Sh170 billion or 4.6 per cent of GDP at the beginning of this month and is projected to reduce to Sh107 billion or 2.6 per cent of GDP in the next financial year.
“This is a huge reduction in domestic borrowing and it will not put pressure on interest rates,” he said.
Dr Thuge said widening the tax net, improving revenue collection, flagging out wasteful expenditures and addressing issues of domestic borrowing and interest rate would help address the budget deficit.
emutai@ke.nationmedia.com

No comments:

Post a Comment