Kenya's budget woes.

Author:Collins, Tom
Position::TAXATION
 
FREE EXCERPT

In September, the Kenyan government passed the country's biggest ever budget. The rise in taxes is leading to a squeeze that is provoking discontent among citizens and corporates alike.

This summer, after the Kenyan treasury declared its intention to implement a 16% VAT levy on fuel that had been delayed several times, there was protest from all sides. MPs hastily formed an opposition caucus, local matatu bus drivers went on strike and thousands of Kenyans took to social media to decry what was perceived as an unfair burden on the average citizen.

Considerable toing and froing ensued as the increase, contained within the 2018 Finance Bill, bounced between the National Assembly and the president. Finally, the hike was signed into law at 8%. President Uhuru Kenyatta's insistence on imposing the levy, which the lower house had voted to delay for another two years, reflects the government's ambitious spending plans as it aims to finance the country's $29bn budget, its largest ever.

Although opposition has centred around the fuel tax, the overall Finance Act contained numerous other increases that are set to squeeze citizens and corporates alike. Many object to paying for the government's large infrastructure projects whose profitability and developmental impact are contested. Others argue that the government will squander the money through corruption and point to alternative ways to raise funds.

Feeling the pinch

In the days following the imposition of the levy, Nairobi's streets were noticeably quieter.

"People are going to restrict their movements," says Simon Kimutai, chairman of the Matatu Owners Association. "We have not seen public transport vehicles being affected but personal vehicles have lessened on the road."

The increased price of fuel has hit consumers, with average fares rising by KSh20 ($0.20) per journey. The price of goods, especially wheat and maize, have followed suit, with transportation costs passed on to consumers.

Other measures in the Finance Act are also set to hit the average citizen. In Nairobi, the price of kerosene, used in most households across the country for cooking and lighting, increased by over 10% per litre due to excise duties.

These rises are stark when contrasted to tax cuts being implemented for gambling companies. The Finance Act reduces the tax on revenues for the high-grossing firms to 15% from 35% and instead allows government to tax punters' winnings (see also pages 18-19). The symbolic nature of...

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