William Ruto came to power on the back of a bottom-up economic plan that promised to create jobs for Kenya’s millions of unemployed youths, address the needs of low-income earners and lower the cost of living. But since coming into office, Ruto’s government has introduced a raft of taxes, which the government claims is aimed at stimulating economic recovery.
On 11 May 2024, the Kenyan government unveiled its latest fiscal proposal, the 2024/2025 Finance Bill. The proposal has sparked a whirlwind of debate and concern as it comes barely a year after the most controversial Finance Bill, 2023/2024, was passed into law.
In the budget policy statement for 2024, the government claims it aims to increase revenue collection to more than 20 per cent of the gross domestic product (GDP) from the current 14 per cent in the 2024/2025 fiscal year starting in July 2024. The aim is to finance the Sh3.9 trillion budget for 2024/2025 from the additional taxation.
According to the International Monetary Fund (IMF) estimation, the country is set to grow to around 5.5% by 2024. However, achieving the fiscal target has been challenging due to global shocks, such as geopolitical tensions in Europe and the Middle East, and domestic challenges, such as high public debt.
Among the biting proposals in the Finance Bill is the introduction of 16% VAT on bread weighing 400g, which is likely to add Ksh10 to the current cost.
The Bill also proposes to introduce a tax known as motor vehicle tax at a rate of 2.5% annually, to be taken out of the value of the vehicle. The value of the vehicle will be determined by the engine capacity, model of the vehicle, year of manufacturing, and make. The minimum and maximum tax payable will be between five thousand shillings and a hundred thousand shillings.
Again, the bill seeks to increase the levy on money transfer services from 15% to 20% of the fees charged for money transfers by banks, money transfer agencies and other financial service providers. This increase will cause a rise in most services, such as the cost of telephone, internet data services and betting services.
Churchill Ogutu, senior analyst at Genghis Capital, says the government wants to see less borrowing – from 900bn in the current financial year to 500bn in the forthcoming financial year. He adds that there are other appropriate measures that the government should put in place without burdening citizens.
“Some of the proposals are quite punitive. The government should reduce spending and know where to cut back, and, as a result, we may not have as much pressure on revenue. Also, the government can look at the current tax system and see how they can raise more revenue from the existing tax system rather than getting to a place where they need to have more tax proposals,” says Ogutu.
Ogutu adds that the cost of doing business and the cost of living are very high, so the tax base is slowly being reduced.
“Since July last year to March this year, they have missed the tax target by a mile. All these tax measures they have introduced for the last 12 to 18 months have been retrogressive. The government needs to balance its budget and also recognize the fact that the taxpayer is overburdened at the moment,” Ogutu adds.
Ruto has repeatedly defended the painful tax measures, saying that paying taxes is the only way the country can sustain itself and get back on track. He added that this has helped the country avoid the threat of defaulting on its debt.
Ruto said he plans to raise the country’s average tax rate to 16% by the end of this year from the current 14% and target a rate of 20-22% by the end of his tenure.
The opposition coalition, led by former vice-president, Dr Stephen Kalonzo Musyoka, warns that Kenyans are free to return to the streets and demonstrate over tax increment, adding that last year’s 2023 demonstrations were meant to bring down the cost of living.
In sum, all indications show that the current increase in taxation has necessitated an uncertain future for many Kenyans who cannot afford the current high cost of living.
