Tuesday, October 31, 2006

Kenyans Are “Taxed to Death”

The World Health Organization recently called on several African countries to lower taxes on pharmaceuticals. Among them is our motherland Kenya, the country with the second largest taxes on drugs in Africa, and maybe in the world. This is according to Taxed to Death, a joint study by the American Enterprise Institute and the Brookings Institute.

The study reports that Kenyan taxes on locally manufactured pharmaceuticals stood at 27.8% in 2005. That was Africa’s (and the world’s) second highest taxes, after DRC’s 31.4%. East African Community members faired better that Kenya, with Tanzania taxing its locally manufactured drugs at 26.2%. Ugandan taxes stood at 21%.

Imported pharmaceuticals are the ones that suffer most from the tax man’s noose. The 2005 overall taxes and tariffs charged on imported drugs stood at 37.8 percent in Kenya. Again, Tanzania and Uganda had lower charges; 31.6% in Tanzania and 31% in Uganda.

The study found that high taxes and tariffs led to higher market prices, which reduced ability of the poor to access medicine. As a result of lower taxation, 50-70 percent of Ugandans and Tanzanians are able to easily access and afford medicines, whereas only less than 50% of Kenyans can easily access and afford the same drugs.

Kenya’s high tariffs and taxes have had grave consequences in the fight against HIV/AIDS. Antiretroviral prices have increased to the point that the government has failed to meet its own treatment targets. The National Aids Council is reported to have targeted to provide 45, 000 patients with drugs in 2004, but only afforded to treat 24, 000 patients. That number is just a drop of AIDS patients in desperate need of antiretroviral drugs.

Finance Minister Amos Kimunya should seriously consider revising Kenya’s pharmaceuticals taxation policy. He could argue that every industry needs to pay taxes and all importers pay tariffs. But his arguments would carry little weight considering that (1) tariffs on imported drugs are only 0.058% of the Kenyan government’s annual revenue, and (2) taxes collected from locally made drugs are equivalent to 0.837% of the country’s annual health budget.

Apart from reducing taxes and tariffs, the government should consider eliminating trade barriers that make drugs expensive, such as slow clearance of cargo at the port of Mombasa. All these costs are passed to the already overtaxed consumer.

The government should know that only a healthy Kenya would make Vision 2030 possible. Unhealthy Kenya would only lead to "Vision Kuombaomba From China", the 2030s superpower.

This post is based on Taxed to Death, a study by Roger Bate, Richard Tren. and Jasson Urbach for the AEI-Brookings Joint Centre for Regulatory Study.


coldtusker said...

Most Kenyans views taxes for the rich.... short-minded but what to do???

They miss the point that fair taxes allow for investments... Businessfolk who have to pay fair taxes will concentrate on the BUSINESS not the tax avoidance or evasion...

High taxes just encourages tax-evasion schemes, tax lawyers & "financial" planners!

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