A section of the business leaders yesterday said they welcome the VAT Bill in as far as it simplifies the compliance process. However they maintained the poor should be cushioned from the impact of the high prices of commodities that will come with the passage of the bill that seeks to tax goods that were previously exempt from tax.

The leaders, from the Kenya Private Sector Alliance and the Kenya Association of Munufacturers were responding to assertions by the Kenya Revenue Authority that the VAT Bill was not formulated to help the government raise revenues but to ease compliance with the tax in Kenya and thus improve the country's investment climate. "It's true. It has fundamentally simplified the VAT administration," said KAM chief executive Betty Maina.

"It was/is very complex." In its argument, KRA said because of the difficult and bureucratic tax payment processes, Kenya has remained a less attractive investment destination. According to a 2013 global World Bank and PWC report on paying taxes, Kenya is ranked 164 out of 185, a worse position than the rank of 153 in 2011 and 154 last year. Countries like Mauritius rank at number 12, Rwanda at 25, South Africa 32 while Uganda is 70 places ahead of Kenya.

"If we really want to improve Kenya's competitiveness, we have to address the fundamental problems that make VAT so onerous to comply with and therefore a threat to Kenya's investment climate competitiveness," KRA commissioner general John Njiraini said last week. Kepsa chairman and Bidco chief executive Vimah Shah said there is general consensus that compliance with the tax should be made simpler but touching on the basic items for the masses poses a serious challenge. "As manufacturers, the more compliant, the better," said Shah but on cost (of food) that is a different issue all together."

Shah argued that removing the previously zero-rated items will only work to make the entire cost of doing business more expensive. Last week, Kenya Airways managing director Titus Naikuni said if the bill is passed, it will affect the expansion plans by the company. The company has projected an expansion of 103 aircraft from the current fleet of 41 in the next 10 years.

"The proposal to tax purchase and lease of aircrafts and spares, which are currently zero-rated, will have a negative impact on the company's cash flow," Naikuni said. Naikuni said the estimated VAT on purchase and lease of aircrafts in the coming years will be approximately Sh108 billion. Yesterday, Consumer Federation of Kenya boss Stephen Mutoro said a balance should be found between the positive attributes of the Bill and its negatives.

"We are not saying it is not good, but there has to be some balance," Mutoro said. The same sentiments were echoed by Shah: "The whole argument should be how we apply it (VAT Bill)," said Shah. KRA further argues that as a result of the exemptions, the government has been forced to scale down on development expenditures such as in health, education and roads to meet the VAT input costs for manufacturers in terms of VAT refunds.