What works in Kenya may not work in Uganda

Thursday, 21st April, 2011

E-mail article   Print article

THIS week in response to the public anger the Kenya government reduced its taxes on diesel and kerosene. The reductions – 20% and 30% respectively, came on the heels of an 11% increase in fuel prices the previous week necessitated by the failure of a price cap put on fuel last year. As a result there are people in Uganda pointing to Kenya and urging government to follow suit, on the surface of it a fair request but impractical on deeper analysis. As a principle government should stay out of the business of dictating prices of any commodity, especially when the factors governing the price of fuel in this case, are externally generated like the world oil prices, the relative strength of the US dollar and transport costs. Secondly, if you reduce taxes on fuel, our biggest tax generator, you will come up with two problems; having to suspend certain government services to account for the gap in revenue and secondly, when the storm is over how easy is it to revert to the previous level of taxation without another political uproar. Our political scenarios are totally difficult as well. Kenya is going into an election next year with a government irreparably divided with some of its key members including finance minister Uhuru Kenyatta in danger for going to trial before the International Criminal Court for crimes against humanity. Uganda on the other hand has just come out of an election where the ruling party retained its majority in the house and President Yoweri Museveni won the right to another term in office. The price increases are painful, but we need to be sober in our analysis and not demand of the Government short-term measures that will have unpalatable long-term repercussions.