Why it is necessary to adjust government fees for inflation
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
09 October 2022
There was quite a bit
of noise when the Kenya Revenue Authority [KRA] announced that it would
adjust the excise duty on certain products with effect from 1st
October 2022 to keep up with inflation. When I saw the announcement, I
wondered why the KRA was asking for views from the public on the planned
adjustment.
You see: some things
are not up for discussion. The law requires KRA to adjust these excise
duties annually based on the inflation rates published by the Kenya
National Bureau of Statistics (KNBS). KNBS has worked out the inflation
rate as 6.3 per cent. What more is there to discuss? KRA should just
inform the public about the effective date of adjustment.
Still; it is
necessary to understand why these adjustments are necessary. The
affected products are those for which the excise duty is indicated as
shillings per unit instead of a percentage of the value of goods. The
amounts of tax were set several years ago. The law was drafted to allow
automatic annual inflation adjustments.
If this was not done,
there is a very real risk that the tax rates can be so far behind
inflation and become too little to collect. President William Ruto’s
comments about the National Social Security (NSSF) contributions are
still fresh in our minds. The current Sh200 was set many decades ago.
Even on my first job some 31 years ago, I contributed the same figure!
It is now a joke.
Then there is the
little-known Sh50 per employee that employers pay to the National
Industrial Training Authority (NITA) each month. This goes into a pool
that is meant to reimburse employers for the cost incurred in training
their employees. Sh50 monthly comes to just Sh600 annually, or, Sh18,000
over the 30-year working life up to retirement.
At today’s rates,
Sh18,000 can only pay for one day of training for one employee. In other
words, the NITA payments can only pay for one day of training in the
life of an employee! It’s simply ridiculous.
Our public
universities have been trying for several year to increase the fees they
charge without success. The current fees were set in 1992 – a full 30
years ago. A time when the gross salary of a lecturer was less than
Sh10,000; today it is approaching Sh200,000. Is it a wonder that they
are all now technically insolvent?
To avoid these kinds
of situations, it is necessary to factor inflation when setting the
rates.
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