Government and Policy

The Reintroduction Of The Kenya’s Finance Bill 2024 Reignites Economic Fears Amid Public Outcry And Deepening Recession

BY Steve Biko Wafula · November 1, 2024 09:11 am

KEY POINTS

KEY TAKEAWAYS

Kenya’s Finance Bill 2024, a repackaged version of the highly contested Finance Act, has returned, reigniting public opposition and stoking economic fears nationwide. In the face of a recession, skyrocketing costs of living, and deteriorating economic indicators, this bill imposes new tax burdens that could worsen Kenya’s already fragile economy. The proposed amendments, designed to increase government revenue, feature a mix of corporate, individual, and indirect taxes, which Kenyans fear may push more households into poverty.

A deeper analysis reveals the weight of these proposals. The minimum top-up tax for multinational corporations mandates a 15% tax on global income—a move that seeks to bring foreign corporations in line with Kenyan tax obligations. While the government argues this will level the playing field, critics worry it may discourage foreign investment, straining an economy already struggling to attract capital.

Meanwhile, the revised VAT on digital platforms aims to capture revenue from the growing digital marketplace. While on paper, this is a logical step in a digitalizing economy, it risks stifling small businesses that rely on online platforms for their survival. The VAT threshold adjustments and enhanced VAT compliance requirements signal additional costs that will inevitably be passed on to consumers.

The reintroduction of the Excise Duty on alcohol and tobacco has also caused an uproar. While the government cites health and revenue motives, these increased taxes disproportionately impact lower-income groups who consume these products. Combined with excise duty adjustments on telecommunication and internet services, these changes increase the cost of essential services and leisure, further squeezing the lower and middle classes.

Social media has been flooded with grievances as Kenyans decry the impending hardships. Many cite recent increases in public debt and the relentless rise in the cost of living as signs that the government has prioritized revenue generation over citizens’ welfare. Indeed, Kenya’s public debt has surpassed 70% of GDP, which, coupled with increased borrowing costs, is a significant drag on economic growth. Experts argue that taxing an already strained population to reduce debt is unsustainable, especially when recent data points to a high youth unemployment rate, which reached 13.7% in recent reports.

The repeal of the affordable housing tax relief is another sore point. It is perceived as removing one of the few incentives aimed at providing affordable housing to the low-income bracket. Critics argue that, without affordable housing, the urban poor face increased risks of homelessness and slum growth.

The Insurance Relief adjustments and the shift in taxable timelines for exported goods add further complexity. The amendments require exporters to declare goods at the time of certification instead of arrival, which could create administrative burdens and cash flow challenges for exporters, further threatening small and medium enterprises in Kenya’s vital agricultural sector.

With these new tax measures, the cost of basic goods is expected to increase. This will likely exacerbate inflation, which has already eroded consumer purchasing power and made even staple items unaffordable for many families. The removal of relief options for struggling taxpayers and the proposal to expand the tax net only deepen fears of a shrinking disposable income, driving down consumption and hurting domestic businesses.

Public sentiment reflects a resounding rejection of the bill, and there is widespread frustration over the government’s handling of the economy. On social media, hashtags like #RejectFinanceBill2024 have trended, with users calling out the political class for its perceived disconnect from ordinary Kenyans’ struggles. Protesters have highlighted that over 200 youth lost their lives in demonstrations against these economic policies, a testament to the desperation and discontent on the ground.

Economists predict that if this bill is enacted, the impact on Kenya’s GDP could be severe, potentially dragging growth down by as much as 1.5% due to reduced consumer spending and investment slowdowns. The private sector, which has been the backbone of employment and productivity, may suffer as businesses re-evaluate expansion plans or even lay off workers to accommodate the higher tax burden. Small businesses, already grappling with high operational costs, may find survival increasingly difficult, pushing more into the informal sector or out of operation entirely.

Amidst all this, the macroeconomic indicators paint a grim picture. With a shrinking fiscal space, rising unemployment, and an inflation rate currently hovering around 8%, Kenya’s economy is walking a tightrope. Analysts warn that increased taxes on both consumption and income, coupled with a reduction in social benefits, may trigger a contraction in household spending, further contributing to economic stagnation.

In conclusion, the Finance Bill 2024 has re-emerged as a heavy-handed attempt to salvage the nation’s financial health at the expense of its citizens’ well-being. While the government claims it needs to shore up revenue for essential services, many believe that it will only deepen the recession. As the Kenyan public unites in opposition to this legislation, it’s clear that people view these tax reforms as a betrayal of the social contract. The people’s message across social media and in recent protests is unmistakable: Kenyans can no longer bear the cost of a government that, instead of alleviating their burdens, has seemingly chosen to tax them into submission.

About Steve Biko Wafula

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters. He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com