Kenya’s finance minister Njeru Githae has provoked controversy with the draft Value Added Tax Bill 2012. The Bill proposes to simplify Kenya’s VAT system by removing a number of exempted items, and thereby increase government revenues. However, critics say that the measures, which essentially impose a 16% tax on basic commodities, will cause significant harm to the country’s economic development.
The proposed changes will result in a 16% VAT being applied to maize flour, bread, wheat flour and milk. As these are all items required by the poor, with low elasticity of demand, the tax is a regressive one because it will account for a higher proportion of the income of the poor than of the rich. The Central Organisation of Trade Unions has threatened a “nationwide strike by workers and the unemployed”, although it is not clear how the unemployed can go on strike.
The Bill also proposes to tax fertiliser, seeds, insecticides, and pesticides. These are all agricultural inputs, and raised prices are likely to threaten the country’s fragile food security at a time when the government should be investing in agriculture, not taxing it. Other proposed taxable items which are relevant to the poor or to economic development include sanitary towels, exercise books, mosquito nets and pumps.