Effects of raising taxes on the Kenyan economy

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Raising taxes. Picture from http://atlantablackstar.com/2012/11/11/fiscal-cliff-economic-disaster-awaits-if-obama-and-congress-fail-to-compromise/

Nothing in this world is certain except death and taxes. – Benjamin Franklin

To live in an organized society comes at a cost which I believe is raised through taxation. While this is acceptable, it shouldn’t be outrageous or misused.

Raising taxes. Picture from http://atlantablackstar.com/2012/11/11/fiscal-cliff-economic-disaster-awaits-if-obama-and-congress-fail-to-compromise/
Raising taxes. Picture from http://atlantablackstar.com/2012/11/11/fiscal-cliff-economic-disaster-awaits-if-obama-and-congress-fail-to-compromise/

Every Kenyan, whether employed or not feels the pinch of taxation. It is even more painful to see the precious funds being wasted by county governors through unjustifiable and fraudulent expenditure while there are more pressing needs that require allocation.

The pending projects and other state requirements such as public servants wages may soon necessitate an increase in taxation which, if effected, may cause more harm than good.

Raising taxes is generally a bad idea since it results in the price increase of commodities and services, high cost of borrowing, high inflation rate, increased cases of tax evasion, among many other effects.

There are many types of taxes, but let us look at look at Value Added Tax (VAT) for example. VAT is a consumption tax added to a product’s sales price. It represents a tax on the ‘value added’ to the product throughout its production process.

If it’s raised this will lead to;
• Increase in the consumer price index, which is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. Thus, an increase in food prices, housing, transport rates and cost of medical care.
• Interest rates will rise due to inflation thus affect the banking industry.
• Suppliers may not remit all the taxes thus causing more deficit.
• The cost of doing business will become too high and less start-up companies will be able to survive.
• Investors shy away.

This would be catastrophic to our economy at large because the cost of living will be unsustainable for the masses. People will not be able too comfortably afford basic needs such as food and in turn productivity and development will be affected thus leading to more unemployment, crime and poverty.

Such a dire situation needs to be avoided by nipping the early signs in the bud. How? Primarily, more efforts need to be put in place to increase the current tax base. This will ensure more tax payers are included in the system. In addition, the ever changing tax rates for essential commodities need to be standardized, tax reliefs for foreign companies should be removed, and more support should be given to local Small and Medium Enterprises (SMEs) as they are key to economic stability in Kenya. Then perhaps the cost of living in an organized society will not become too heavy of a burden to us.

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