The West imposed austerity in Kenya in the midst of the pandemic is biting through inflation in the form of dozens of tax measures that are ripping the most vulnerable.
Since January, this year, the Treasury piqued by the International Monetary Fund (IMF) and the World Bank froze VAT and Pay-As-You-Earn (PAYE) exemptions introduced last year and resumed corporate tax charge to 30 per cent from 25 per cent.
What’s more, Kenya has also introduced a digital services tax, minimum income tax payable by all companies at one per cent of the gross turnover, excise duty hikes on call and data, loan fees, as well as reinstatement of VAT on cooking gas.
The pain at the retail and supermarket outlets is biting hard and if the weather does not behave your neighborhood grocer will bite, too.
There are reports of an expected 20 per cent drop in maize yields from bread baskets of Trans Nzoia and Uasin Gishu counties on the impact of erratic rains, compounded by bureaucratic confusion which has delayed delivery of crucial fertilizer, Calcium Ammonium Nitrogen (CAN) to thousands of farmers.
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Application of CAN is crucial at this stage as its nutrients helps maize boost growth despite the vagaries of weather.
Worse still, the scourge of fall army worms is expected to spread since the pests thrive in the absence of adequate rains.
Further, higher taxes and inflationary food prices may drive consumption into the ground and yoke an economy which was just beginning to recover from the pandemic fallout.
This comes as the country is reeling from rise in unemployment, an IMF-imposed salary freezes on wage bill workers and a private sector woefully crippled by bad loans hence shelving expansion for survival; a recipe for a vicious feedback loop.
However, the IMF have justified the tax slaps as necessary given the debt levels and an impression that the situation is improving.
“In response to the improving conditions, many of the tax and regulatory relief measures extended at the onset of the crisis have been discontinued,” the World Bank said in the Kenya Economic Update in June.
However, the improvement last year was actually as a result of the tax cuts on VAT, incomes and corporations that resulted in more exchequer collections.
The Kenya Revenue Authority (KRA) closed the calendar year 2020 on a high after managing to surpass its December collection target.
The taxman posted improved revenue performance rate of 101.3 per cent for December 2020. This was the first positive and above target collection rate since the outbreak of the Covid-19 pandemic.
KRA collected Kes 166 billion against a target of Kes 164 billion representing 3.5 per cent growth over the same period last year.
But the Bretton Woods institution, which has been bankrolling the government’s largesse, believes Kenyans will survive on diaspora philanthropy and positive sentiment.
“On the demand side, private consumption is expected to continue to recover, supported by a pickup in wages and household incomes, and resilient remittances. Consumer confidence and business activity should be supported by ongoing vaccination efforts and the return of mobility to pre-pandemic levels,” the World Bank said.
Conveniently forgetting that only seven out of 100 Kenyans receive the annual Sh333 billion diaspora dollars.
According to Financial Sector Deepening, only a small share of households received remittances (7 per cent) in January–March 2021.
The remittance amount was larger for around half of the households that received remittances compared to pre-COVID-19 amounts. However, one-quarter received smaller amounts, which may have consequences for household welfare.