The government of Kenya is in trouble as lenders put pressure on them to end the Covid-19 tax relief packages to Kenyans as soon as possible.
A number of lenders are hesitant to offer Kenya more loans because the country cuts wasteful spending and streamlines operations costs.
The tax relief, which had been extended to January 2021 by President Uhuru Kenyatta, was to cushioned Kenyans from the effects of the Covid-19 pandemic.
Some other tax relief measures will be in place for much longer as they will lapse in July next year to coincide with the end of the government’s financial year. The turnover tax, which had been reduced from 3 percent to 1 percent will run until the end of December 2020.
A reduction of pay as you earn PAYE to 25 percent on those who earn more than 24,000 shillings and 100 percent waiver on those taking home less than 24,000 shillings, will end in January 2021.
President Uhuru Kenyatta said that, to continue cushion micro, small and medium enterprises, the treasury considers maintaining the reduction of the current turnover tax from three percent to one percent.
“The question that this development begs is the following if positive disruption and innovations have mushroomed during Covid-19, how do we support them as part of our resilience-building strategy”? Kenyatta posed before extending the relief packages.
Treasury has been forced to tap into the highest amount it has ever borrowed through overdraft facilities from the Central Bank of Kenya, as well as look to multinational donors for a way out.
Fearing the worst, the country has approached the International Monetary fund and World Bank for Fund and World Bank for a 400 billion shillings loan and expects to spend part of the money to repay some of its loans to foreign creditors
The government officials are contemplating reversing these relief measures as the Treasury will be forced to borrow more if it does not cut spending.
Kenyans have been already flagged by IMF as a risk of defaulting its loans commitments after the economy was affected by the Covid-19 pandemic
Since May, more than 342,000 households have received the weekly 1,000 shillings stipend to cushion them from economic hardships caused by the pandemic.
The banking sector regulator said a significant increase in the use of mobile money channels by individuals in both value and number of transactions was noted after mobile operators removed the transaction charges.