Tag: Finance Bill

IMF and Kenya: Protests, Debt, and the Struggle for Stability

Kenya, once East Africa’s beacon of economic development and democratic stability, now faces political and financial turmoil.

Massive protests erupted after parliament passed a bill hiking taxes on essential goods, further burdening an already struggling population.

The violent crackdown on protesters and subsequent deaths have deepened the crisis. President William Ruto’s refusal to sign the controversial tax bill to address Kenya’s staggering $80 billion debt has left the country’s future uncertain.

The International Monetary Fund (IMF), a key player in Kenya’s economic policies, faces fierce criticism for its austerity measures.

As Kenya navigates these turbulent waters, questions about its political and economic stability intensify.

IMF and Kenya’s Debt Crisis

Ruto pushed the bill to address Kenya’s $80 billion debt, with $35 billion owed to foreign creditors, mainly China, the World Bank, and the IMF.

Without repayment, Kenya risks future borrowing challenges, which could worsen unemployment and poverty.

This situation reflects the struggles of many developing nations burdened by debt.

Binaifer Nowrojee, president of the Open Society Foundations, highlighted that over 3 billion people globally live in countries prioritizing debt payments over essential services like education and health.

IMF’s Role and the Finance Bill 2024

The IMF has significant influence over Kenya’s economic policies. It often imposes austerity measures, including tax hikes and spending cuts, as conditions for financial aid.

These unpopular measures sparked widespread protests in Kenya.

The Finance Bill 2024, part of an IMF-backed program, proposed new taxes. President Ruto’s rejection of the bill increased public scrutiny and anger towards the IMF.

Julie Kozack, IMF Director of Communications, expressed concern over Kenya’s unrest and emphasized the IMF’s commitment to supporting Kenya’s economic growth and well-being.

Reports suggest the IMF advised the Kenyan government to stand firm on the bill despite expected protests.

Deputy President Rigathi Gachagua criticized Kenya’s intelligence services for failing to foresee the violence.

Massive protests erupted after parliament passed a bill increasing taxes on essentials like cooking oil, diapers, and bread, adding to the burden of a population already struggling with inflation and unemployment. [Photo: Getty Images]

Kenya’s Path Forward

Kenya faces a murky future both politically and financially. Ruto’s refusal to sign the tax bill means the government must adopt austerity measures to comply with a 2021 IMF loan agreement.

This agreement requires tax increases and spending cuts while protecting the social safety net. Ruto plans to cut government spending, starting with his office’s budget, to align with IMF guidelines.

However, austerity measures could still affect public programs like infrastructure, healthcare, and education, exacerbating inequality and affecting critical services like school meals.

Kenya spends about 60% of its revenue on debt payments, with a third going towards interest. While this pleases creditors, it limits funding for essential services for the population.

Limited Options for Kenya

Kenya has few options to manage its debt. Defaulting on payments could ease the burden short-term but would harm its credit rating and future borrowing ability.

Renegotiating loan terms could help reduce debt payments but would still require austerity measures and possibly higher taxes.

Maintaining the current course means limited funds for economic development and public services.

The Struggle for Stability

Kenya must find new revenue sources. Any tax increase should target the ultra-wealthy to regain public support, though this may be unpopular among the elite.

Raising capital is a short-term fix; long-term solutions require addressing corruption, waste, and mismanagement. Efforts to reform may anger the wealthy, whose businesses rely on corrupt government relationships.

Kenyans feel their government is not acting in their best interest, fueling protests. This dissatisfaction stems from Kenya’s political culture and international financial institutions that have failed developing countries.

As President Ruto navigates these challenges, the world watches to see if Kenya can emerge stronger or succumb to debt and political instability. The coming months are crucial for Kenya’s economic policy and political leadership.

June 30, 2024
Ahmednasir Criticizes Ruto For Overtaxing Kenyans And Doing Little To End Corruption

Lawyer Ahmednasir Abdulahi has called out President William Ruto’s administration for overtaxing Kenyans while doing too little to prevent looting of public funds.

Ahmednasir who was commenting on the new proposed taxes in the Financial Bill 2024, warned of hostility from the citizens who’re getting overburdened by the increasing taxes.

He said Ruto risks losing a big chunk of the hustlers support who formed his campaigns base.

“Over taxation, especially of goods and services used by mama Mboga and Wanjiku, make governments very unpopular and delegitimised when it doesn’t provide corresponding services or when the taxes are stollen by corrupt civil servants. President William Ruto’s government is going that route full speed.” Ahmednasir said in a statement posted on Social Media.

While underscoring the importance of raising taxes for repaying country’s debts that he blames on reckless borrowing by President Uhuru’s administration, Ahmednasir says bulk of the taxes are being looted by state officials who keep getting away with it and in line nesting the logic of raising taxes.

“Our government raises taxes every year and we obviously don’t get value of money. We don’t have good roads, health services are in shambles, the education system is almost non-existent (very soon, more children will do British curriculum than Kenyan), judges make more than than lawyers, farmers are suffering because of fake fertilisers and Hon Mithika Linturi refuses to take responsibility, theft of public money is normal, Governors and county officials are stealing like crazy etc,” he noted.

Going for Ruto’s neck, the lawyerthe lawyer now wonders why Kenyans should be burdened with taxes at the expense of government officials who loot with impunity.

“So surely, why do we pay taxes? For CSs, judges, and governors to steal it? Doesn’t make sense for me. President Ruto needs to engage Kenyans on these taxes and why it is stolen UNDER HIS WATCH. Mr. President, we will pay taxes but give us value for our money and stop your Waziris, judges, and governors stealing Wanjiku’s taxes.” He added.

May 13, 2024
Finance Bill: Govt To Take 20pc Of Betting Stakes

Gamblers will pay the government Sh20 for every Sh100 staked after the National Treasury proposed to increase excise tax on betting stakes to 20 percent, in the latest State onslaught to lower the appeal of betting.

The proposal is contained in the draft Finance Bill, 2024 and if adopted by Parliament will increase the tax from the current 12.5 percent.

The Bill is expected to be adopted by Cabinet and tabled in Parliament for debate and approval before the end of June. Currently, the government takes Sh12.50 from every Sh100 similar amount to be wagered.

“The first schedule to the excise duty Act is amended by deleting the words twelve-point five percent and substituting thereof the words twenty percent,” the National Treasury says in the draft Bill.

This is meant to lower the appeal of betting to millions of Kenyans, especially the youth and unemployed who have turned to gambling as a source of income.

The government has in recent years publicly pushed for increased taxes in a bid to curb the betting craze that has made Kenya home to the highest number of youthful gamblers at 76 percent, placing the country ahead of Nigeria and South Africa.

Adoption of the new tax rate will lower the amount that gamblers stake, in turn reducing the possible pay-out from a winning bet.

The 20 percent rate will be in addition to a similar rate charged as withholding tax on every winning bet that the State takes.

Betting firms are under law required to deduct the withholding tax and remit it to the Kenya Revenue Authority (KRA) by the 20^th of the following month.

Besides gamblers, the State has also set its eyes on the betting firms and last year proposed two new taxes through the Gambling Control Bill, 2023 that has since been debated in Parliament.

These were the gambling tax which will be charged at the rate of 15 percent of a betting firm’s gross gaming revenue and a further one percent monthly levy on the same revenue.

But the National Assembly committee on Sports proposed reduction of gambling tax to 13 percent from 15 percent and removal of the one percent gambling tax in its report tabled before the House in December last year.

Increased taxation on the betting industry is bearing the desired impact at least in the eyes of the government. BCLB data shows that betting firms made Sh60 billion in revenue for the 2021/22 year, an 80 percent drop from Sh299 billion posted in the year to June 2019.

Data from the Betting Control and Licensing Board (BCLB) released last year shows that gamblers spend an average of Sh2,500 to bet every month with 80 percent of the winning punters earning less than Sh30,000 per month.

The Treasury has previously failed in bids to tax betting stakes at the rate of 20 per cent, after Parliament gave in to pressure from gaming firms and lowered the rate. The first time the Treasury proposed the 20 percent rate was in 2019.

Excise tax on betting stake was increased to the current 12.5 percent from 7.5 percent in July last year as the State raided the industry in a bid to take away the shine from the betting craze.

May 12, 2024
Finance Bill: Vehicle Owners To Pay Annual Tax

Vehicle owners will start paying an annual tax of up to Sh100,000 depending on the value of their cars if Parliament endorses the proposal that looks set to increase motoring costs amid costly fuel and spare parts.

The Finance Bill 2024 proposes the introduction of a 2.5 per cent annual tax on the value of vehicles, with the deduction set at a minimum of Sh5,000 and a maximum of Sh100,000.

The deduction, called motor vehicle tax, will be paid on each vehicle at the time of issuing an insurance cover.

This means second-hand cars like the Toyota Harrier and Mercedes Benz C-Class that were in February averaging between Sh4 million and Sh4.4 million in many yards in Nairobi will attract the maximum tax of Sh100,000, with the value only falling if valuation declines in subsequent years.

“The rate of tax in respect of motor vehicle tax charged under section 12H (which introduces the tax) shall be 2.5 per cent of the value of the motor vehicle,” reads the bill in part.

Engine capacity

“The value of a motor vehicle shall be determined on the basis of the make, model, engine capacity in cubic centimetres and year of manufacture of the motor vehicle.”

The only exemption from the 2.5 per cent tax includes ambulances, or motor vehicles owned by the national government, county government, Kenya Defence Forces, National Police Service, National Intelligence Service or a person exempt from tax under the Privileges and Immunities Act.

Insurance cover

The tax looks set to increase the cost of operating motor vehicles in Kenya, in addition to insurance cover, fuel and servicing costs. The State had last year mulled introducing a congestion charge —a fee charged on cars and motor vehicles being driven within zones marked as heavy traffic areas. The proposed tax in the Bill has not made it clear if this is linked to environmental protection.

There are global efforts to introduce special taxes on vehicles running on diesel or diesel due to their pollution.

Official data shows Kenya has witnessed a nearly doubling of registered motor vehicles in the past five years to 2.19 million in 2022 compared with 1.27 million in 2013. The number of newly registered motor vehicles in the same period hit 512,779, translating to an average of 102,556 every year.

The Finance Bill makes insurers the agents of the Kenya Revenue Authority (KRA) and they will be required to collect and remit the tax within five working days after issuing a motor vehicle insurance cover.

Escape the tax

The Insurance Act makes it mandatory for every car on the Kenyan public road to have a minimum of a third-party motor insurance cover in place.

Tying the motor vehicle tax with insurance means it is going to be difficult to escape the tax.

The bill proposes a penalty of 50 per cent of the uncollected tax on insurers who fail to collect and remit the motor vehicle tax to KRA. They will then be required to remit the actual amount of the uncollected tax.

The planned tax is in line with last year’s proposal to introduce an annual wealth tax for car owners, depending on the engine capacity and also roll out a gradual rise in the excise duty on cars running on fuel.

The Treasury had said it was going to assess the viability of introducing the motor vehicle circulation tax as a form of wealth tax. It had indicated that this was going to be paid at the point of acquiring an insurance cover.

May 11, 2024