Tough Luck for Kenyans as State Agrees to IMF Demands

Kenyans should prepare themselves for increased taxes after the government consented to the demands by International Monetary Fund (IMF). The Treasury succumbed to conditions laid down by the IMF, which includes the repeal of some tax exemptions enjoyed by key sectors of the economy.

This commitment to the IMF indicates but a raft of measures likely to perturb the ordinary Kenyan. By agreeing to remove some tax exemptions, some sectors of the economy will be greatly disadvantaged.

Industries that will be hit include health, tourism, finance, agriculture, manufacturing, education, social work, and energy. In the next financial year, tax havens on products like milk, maize flour, and sugar will come to an end.

Treasury has signposted that the consumption tax exemption on petroleum products, is bound to attract 16 percent VAT from September. This is aimed at conforming to a deal Kenya made with IMF in 2015.

An extra of 17 billion shillings is expected by the Treasury from taxes on petroleum products. There are approximately 30 tax-exempt categories accounting for 88 percent of total tax exemptions, World Bank notes.

The is desperately hoping to squeeze an extra 40 billion shillings in taxes from these sectors. The ripple effect will be increased cost of goods and services that are presently enjoyed at a discounted level.

Besides removal of tax exemptions, another assurance that the National Treasury and the Central Bank of Kenya (CBK) gave the IMF is to either remove or modify interest rate caps and suspend the execution of some development projects.

The condition was to access the 150 billion shillings precautionary loan known as the standby arrangement (SBA) from IMF. The state was allowed a six-month extension on the standby arrangement to work on the IMF-driven proposals before being permitted to access the credit facility should the economy suffer an external shock.

“The proposals would be included in the upcoming budget to be tabled in Parliament in June,” stated the National Treasury Cabinet Secretary Henry Rotich and Central Bank Governor Patrick Njoroge, in the letter of intent to IMF’s president, Christine Lagarde

“In light of the revenue shortfalls so far this year, to achieve the fiscal deficit target for 2017/18, we have introduced specific revenue administration measures that are under implementation, and identified specific spending cuts,” said Mr. Rotich and Dr. Njoroge.

According to the two policymakers, to achieve the fiscal deficit for 2018/19, they have committed to introducing, through the Finance Bill 2018, revenue-raising measures, including removal of some tax exemptions and improvements in tax administration.

The IMF, however, expressed its concerns that should the Government not tame its appetite for debt, it would soon rise to about 60 percent of its gross domestic product.

The Government’s appetite is sinking the country into a debt that is currently swelling at 4.6 trillion shillings. This shift in policy will see Kenyans suffer when they haven’t healed from the tough economic times occasioned by a crippling drought, reduced credit, and prolonged electioneering period.