Monday, April 12, 2021

WHAT IS GOING ON AT THE FINANCE MINISTRY?

Last week the finance ministry announced a raft of new tax measures it intended to implement starting in the coming financial year.

The public has been up in arms lambasting the ministry for thinking of increasing taxes or adding new taxes in this time of financial stress.

I am always amused at the knee jerk reaction of your man on the street at the sound of new taxes in the offing. Its spontaneous and loud but peters out just as fast as it erupted. I guess the bureaucrats too have heard it all before and find it hard to take us seriously.

That being said I was shocked that the ministry was suggesting a return to the annual road licenses for cars.

In 2007 then Finance minister Dr Ezra Sururma announced the abolition of the road licenses in his 2007/08 budget speech. He explained that while it was projected to bring in sh80b, "It is undermined by the high rate of default, rampant forgery of license stickers and requires a lot of administrative resources to ensure compliance. This state of affairs is untenable,” he told parliament.

He said he would recover the “lost” revenues from other sources. The government decided to put the levy on fuel and ring fence the proceeds for road maintenance.

For a car owner at the time this was a godsend. It, renewing road licenses was time wasting process that involved waiting in long lines at the URA office to pay for the license and days later, to collect the road license. Default was rife and I would be surprised if the finance ministry would have collected even half of that projected sh80b. Most of the tax was going into traffic policemen’s pockets....

It was a win-win situation because now every car owner paid the tax. In addition, all boda bodas pay now and it was pointed out to me recently, that even lawn mowers pay the tax.

If there was ever tax that widened the tax base painlessly – for the payer and the collector, this was it.

The strangest thing was that URA and the government never divulged how much they were collecting in the new scheme, which we took as a signal that they were collecting way more than sh80b and did not want to say.

It is therefore baffling – it is inconceivable the planners were not driving in 2007, that the ministry would contemplate this U-turn.

And by the way the return to road licenses should mean that they remove the levy on fuel, isn’t it?

The pressure for more taxes is plain for all to see. The Covid pandemic has forced government to borrow more than planned. While a lot of this was concessionary borrowing, the budget was already under pressure, with debt servicing accounting for three in ten shillings of the budget.

That being said we will be forgiven of looking with a jaundiced eyes at such tax initiatives, which if they are what they seem on the surface, we wonder whether the planners are trying to pull a fast one on us. Hoping that we don’t remember how we got to where we are, hoping to take advantage of our good nature...

As an aside the Auditor General reported to parliament last month that even some of the money we borrow we don’t utilize. There was the issue of sh1.4trillion that went begging when the facility expired before the money was disbursed.

Thankfully parliament has thrown up a real stink about this particular tax measure and rightly so.

Listening to a finance ministry official on radio this week laboring to explain how the tax will be levied – according to seats in a vehicle, I couldn’t help thinking it would be helpful to know how much the original fuel levy was bringing in, if only to help us determine whether it has done its time or not.

It boggles the mind to wonder which government would forgo as perfect a tax as this one, where compliance is 100 percent and cost of collecting minimal for a mode of collection where he is not 100 percent certain to collect all the intended tax?

It has to be an unusual situation too, where the tax payer is arguing for a tax he cannot evade and against one which had been shown to be manipulated as Suruma said when he was abolishing it 14 years ago.

 


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