The cost of essential goods and services in Kenya like electricity, airtime, pay-TV subscriptions, cooking oil and detergents has already started going up in the country. This follows the restoration of Value Added Tax from 14% to 16%. The increase in these consumer goods prices has now been executed after the Parliament of Kenya voted to get rid of the tax cuts put in place in April 2020.
This was an action made by the lawmakers to cushion Kenyans from the hard economic times in the wake of the COVID-19 pandemic. The prices were set to go back to normal from January 1st as the government aims at plugging revenue shortfalls.
Firms like Safaricom, Kenya Power and Multichoice will now start adjusting their product prices in accordance with the VAT increase. However, various investors have expressed their disagreement with the tax increase saying that it might hamper a recovery instead of encouraging it.
The higher VAT will see also the prices of goods like newspapers, books, phones, electronics and computer hardware & software increase.
Additionally, the price adjustments come at a time when civil workers, in particular, are receiving cuts on their net earnings following the withdrawal of income tax reliefs imposed in April last year.
Lawmakers who opposed the tax cut reversal said the pandemic had not subsided and Kenyans still needed help.
The crisis caused by the pandemic saw Kenya’s economic output decline in the second quarter for the first time since the 2008 global financial crisis. The tourism and agricultural exports, the country’s main currency earners, took really huge hits whose effects are still being felt.
So, the Treasury argues that the tax reliefs were no longer sustainable and were persistently contributing to the revenue collection shortfalls which slowed implementation of government programmes.