Kenya’s Treasury Secretary has given the strongest signal yet that the unpopular 16 per cent Value Added Tax might be dropped

While speaking to reporters in Nairobi on Thursday, Henry Rotich said the 16 per cent Value Added Tax on petroleum products will be reviewed “shortly” and his ministry was in final stage of striking a deal with the National Assembly following discussions which started last week.

“We are looking at options of reviewing it and that discussion is at final stages. I can’t give you any direction at the moment,” Said Mr Rotich.

Since 1st September when the 16 per cent levy on petroleum product came into effect, there has been a countrywide uproar, with public transport players hitting passengers with a 40 per cent raise on fares.

The imposition of the levy on petroleum products was initially suspended for three years when the VAT Act 2013 was enforced, but MPs extend the grace period for two years which expired on August 30.

Following public outcry however, legislators unanimously voted to amend Finance Bill 2018 to defer the VAT levy on fuel for a further two years to September 2020.

Mr Rotich did not, however, disclose if the discussion were around postponing it for another two years or reducing it.

“Review means exactly that: review. We will advise you as soon as that is concluded,” he said.

The 16 per cent Value Added Tax on petroleum products is a litmus test for President Uhuru Kenyatta’s administration, with the government walking a tightrope between keeping its commitments to international donors and caving into the public interest.

Should the government bow to public pressure and suspend the implementation the country risks being locked out of IMF’s precautionary credit.

IMF will then be at liberty to recall their outstanding principals with could immediately trigger an economic meltdown in the country.

Kenya’s reputation as a favorite investment destination in the continent will also be badly damaged and seen as a 'high-risk' investor destination.

As a result many experts have cautioned the government against going the populist route.

Should the government choose to stand firm and continue with the 16 per cent value-added tax (VAT) on petroleum products, while the country stands to improve the state of its coffers and financial ratings, it risks being unpopular in the public eye.

Talk about ‘damned if you do and damned if you don't’.