Experts want Kenya Kwanza to curb insatiable tax appetite

The Kenya Kwanza administration has come under criticism over its fiscal policy proposals that heavily relies on taxation to raise revenue.

According to economic experts who appeared before the National Dialogue Committee sitting in Bomas of Kenya to discuss the high living costs, the situation is as a result of the government’s unfavourable tax regime.

The round-table meeting identified increased taxation, unrealistic budget and revenue estimates and the lack of Foreign Direct Investment (FDI) as a contributor to the high cost of living.

The committee heard from the Controller of Budget Margaret Nyakang’o, the Institute of Economic Affairs Chief Executive Officer Kwame Owino and officials from the Parliamentary Budget Office.

The experts told the committee co-chaired National Assembly Majority Leader Kimani Ichung’wah and Wiper party leader Kalonzo Musyoka that the increased Value Added Tax (VAT) and excise duty has had a huge negative impact on the economy by reducing Kenyans’ spending power.

According to Ms Nyakang’o, the existing taxation structure overburdens low-income earners, who are the majority in the country, and is likely to worsen the current economic crisis.

“There is an urgent need for tax reforms in the country. Increased taxation may lead to potential adverse economic effects. There is an optimal tax rate that maximises government revenue,”Ms Nyakang’o said.

“Increasing tax rates beyond this point may reduce tax revenue because higher taxes can discourage economic activity, worsening the cash position.”

The committee was specifically keen on the impact of President William Ruto’s foreign trips on FDI.

They also questioned why neighbouring countries are fairing better as compared to Kenya.

The experts noted that although the impact of the President’s foreign trips on the FDI cannot be measured, the dire economic situation is likely to discourage investors.

“The economic environment is still hostile. So, even if the Head of State goes outside and gets the investors into the country, they will come explore and go back because our economic situation is not good for their investment,” Ms Nyakang’o said. 

Officials from the Parliamentary Budget Office painted a grim picture of the economy, noting that neighbouring countries are faring better due to huge investment projects such as gas plants and railways as well as political stability. 

According to Dr Martin Masinde, the acting director PBO, over-reliance on imports and less exports has significantly contributed to the depreciation of the Kenyan shilling.

“This has contributed to a high cost of imports including fuel and food and affected the stability of import-oriented businesses. It has also led to high levels of unemployment and loss of livelihoods,” Dr Masinde said. 

Mr Owino, from the Institute of Economic Affairs, proposed the introduction of tax reliefs and VAT exemptions as well as subsidies on essential commodities and increased social protections. 

“There is a need to focus on subsidies and transfer of cash to vulnerable members of the community. There is an income problem among most of the households in the country, even if we subsidise production and there is food in the market, if the people do not have money, then they cannot afford it,” Mr Owino said.

He said the government should eliminate the housing levy and focus on implementing a school infrastructure programme across the country to ensure equitable distribution of resources and create job opportunities. 

Mr Owino also urged national and county governments to reduce unnecessary expenditure.

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