The Kenyan Finance Bill 2024 has united a fractious opposition and some sections of the public, mainly those sympathetic to the Azimio coalition, who are calling for its abandonment. In response to well-organized protests, the government backpedalled several tax initiatives that targeted the very poor. This discussion summarizes the Kenyan budget, highlighting major issues, pinpointing flashpoints, and interrogating the reasons behind these tax hikes that affect the quality of life for Kenya’s poorest citizens.
As in many post-independence African regimes, there is a growing and stratified leadership in Kenya that is self-serving, perceiving its people not as citizens but as loyal subjects meant to serve them. The government imposes sacrifices and economic pain on the weakest members of society while passing laws to shield itself from inflation and other economic difficulties.
Kenyan Budget Summarized
Kenya’s 2024/25 budget aims to tackle the country’s debt while protecting its fragile economic recovery, with growth estimated at 5.5% in 2024 and 2025. Tanzanians may recall the tough times during President Mkapa’s first term (1995-2000) when paying off external debt led to a fiscal crunch, known as “Ukapa wa Mkapa.”
Honouring external debt payments is even more challenging today due to higher interest rates. The Kenyan government faces a tough choice: investing in the domestic economy or clearing external debt. Structural adjustments are necessary, meaning it can’t be business as usual.
It’s clear the Kenyan government cannot do both; it must choose one of two options. Protecting economic recovery requires further investment in the domestic economy while clearing external debt necessitates severely draining domestic resources. This means bleeding the local economy to appease foreign creditors. Is there a middle ground? Unfortunately, no. The only solution is soul-searching structural adjustments that are painful for all. In short: “It is not business as usual.”
Read Related: Tanzania’s 2024/25 Budget: A Glitzy Reveal, Grand Show! But What’s the Plan?
However, as I mentioned before, the inertia against reforms is evident. The rulers of the day do not want to shoulder the trauma themselves and have shown remarkable resilience to pass the buck to the smaller guy! During times of sacrifice, government recurrent expenditures balloon in wages, fancy cars, unnecessary foreign trips, medical treatment abroad, office and residential home refurbishments, and a hike in the Constituency Development Fund (CDF), which essentially amounts to a second informal income for the honourable MPs.
Even court decisions to outlaw the CDF have been overturned through the crafting of statutes to undermine justice. The Kenyan courts ruled that MPs should not manage these funds, as it violates the doctrine of separation of powers between the executive and the Parliament. However, such judicial restraint was ridiculed by drafting the same law in a way that only pretended to be different, while in reality, the substance remained intact.
The fiscal deficit was expected to be 3.3% of GDP, compared to a revised deficit of 5.7% for 2023/24. Kenyan Finance Minister Njuguna Ndung’u blamed the Covid-19 pandemic and climate change events, such as devastating floods in 2023 and 2024, for the economic woes but was silent about the burgeoning perks of politicians as part of the economic “mea culpa.”
He claimed that government policy efforts have reduced the cost of living and revitalized an economy showing signs of strong recovery. Kenya’s economy is largely driven by agriculture, manufacturing, transport and storage, financial and insurance services, and real estate.
Kenya’s total public debt stands at an estimated 68% of GDP for fiscal 2023/24 and is expected to fall to 64.8% in 2024/25, according to the World Bank. Ndung’u said total spending for the fiscal year 2024/25 is projected at 3.992 trillion Kenyan shillings ($31.19 billion). To finance the budget, Kenya aims to borrow 333.8 billion shillings from external sources, and 263.2 billion from the domestic market.
“The government will slow down the uptake of new external commercial debt and undertake liability management operations through debt swaps and other innovative solutions,” the minister added. Kenya sold a $1.5 billion international bond in February at a premium to fund the buyback of a large portion of a $2 billion bond maturing in June. Before that, investors had feared Kenya might not be able to repay the bond due to its strained public finances. So, its performance in the financial markets remained: “wait and see.”
Recently, parliament approved overall spending for the year at 4 trillion shillings, up from the 3.75 trillion shillings the minister presented last June for the 2023/24 year. That budget was later adjusted to 3.85 trillion shillings. The 2024/25 budget is accompanied by the Finance Bill 2024 which came before parliament. The bill is a separate law outlining proposed tax increases on various goods and services, which critics say could cripple some sectors, including financial and internet services, transport, manufacturing, and retail.
Also, read: Kenya’s Intervention in Haiti: A Cautionary Tale for Tanzania’s Foreign Engagements
Areas Targeted for Tax Hikes Rescinded After Public Backlash
In a national address, the Public Finance parliamentary chairperson, Kimani Kuria, proposed a variety of tax removals that could have triggered inflationary pressures affecting many low-income earners. The following is a list of scrapped taxes:
Excise Duty on Mpesa transactions
This was initially almost wholesale copied from Tanzania. Tanzania dropped the whole tax but Kenya kept it, now the budget proposal was to increase it from 16% to 20% per transaction. That mathematically translates into Kshs 20 for every Kshs 100 sent through mobile phones from Kshs 16 for the same amount. Obviously, the Kenyan regime is doing this to find money to support its insane appetites albeit developmental initiatives are often cited to soothe and palliate the betrayal.
VAT on Banking Services
The budget aimed to impose 16% VAT on banking transactions but now has been withdrawn. The purpose was to enshrine equity between mobile money transfers and banking transactions. It quickly transpired that the easiest way to kill the banking sector was to play a major role in economic activities.
Eco Levy
This tax was designated for imported finished products and protecting locally produced products and jobs too of the same nature such as sanitary towels, phones, computers, wheelchair tyres, and diapers. The outcry was that Kenyan products were clutching a tiny share of the market, therefore, the brunt of tax would be felt by the hard-hit low-income earners.
Excise Duty on Imported Groceries
This too was taken off the table. It was aimed too to protecting local producers but as indicated earlier the production capacity in Kenya for onions, eggs and potatoes is too shallow to act as substitutes for imported goods. East African goods were also targeted for this duty! Most of Kenyan fresh groceries come from neighbours: Uganda and Tanzania, and that would have left consumers having less foodstuffs on dining tables. Such tax burden was egging on national hunger, but for whose gain?
VAT on Bread
16% VAT on bread has been scrapped for now in a manner that suggests it has been exempted and not zero-rated. Bakers cannot claim it from the Treasury so they will pass it to their customers. Only sadists can target food for VAT knowing Kenya is always on a conveyor belt from one hunger to the next. Food security demands zero taxes on sources of production and access to food.
2.5% Motor Vehicle Tax
The reason it was removed was to protect the insurance sector. The committee also saw it was inappropriate to add it to the income tax category.
eTIMS for Peasants
Peasants categorised as earning less than Kshs 1 million a year were exempted from producing an invoice in financial transactions through an eTIMS (electronic Tax Invoice Management System).
KRA to Spy on Clients Dropped
A legislative effort to amend data protection laws to permit the Kenya Revenue Authority to assess, enforce or collect unpaid taxes without safeguarding the rights of the clients in question as the aforementioned laws require was scrapped. Such a legal terrain could have promoted tax blackmail, extortion and abuse of power without checks and balances through judicial reviews.
KRA feels some of her clients keep double accounting books to dodge taxes, and would like to carry out a thorough forensic accounting without being bogged down by data protection laws.
That leeway was shot down for now but I predict it will be restored sometime in the future when the political environment is conducive. For a cash-starved government that is reluctant to cut her fat, this is not even a frozen conflict like an armistice but it is merely a cunning feint.
Why Fiscal Reconciliation is Not Feasible
The Kenyan constitutional order was widely praised for bringing the bureaucracy closer to the people in the name of “devolution”. It was erroneously presumed that would speed up quality services to the people, but practicality is a different matter altogether. Nobody was willing to appraise the cost of the much-lauded “devolution”.
No sooner had the new devolved counties, a total of 47 – that became operable in 2022 than the new kids on the block took a leaf from their central government demanding a fair slice of the national cake!
Most elective County officials took a united front to demand almost a third of the salaries and perks of the national Parliament. The governors too created an emoluments package that rivalled cabinet ministers. Though, in her constitution, Kenya has a public servants’ emoluments commission but seems eunuch to arraign on the pressures to raise senior public servants’ pay packages.
Over time, even civil servants conducted regular and well-orchestrated strikes to claim what they perceived as a fair pay package. Now, what we have in Kenya is a kleptocracy: a thieving bureaucracy unaccountable to the electorate. Now Members of County Councils – in certain counties receive CDF just like national MPs.
In Meru Constituency, a governor, Mama Kawira Mwangaza, was twice impeached because she refused to craft laws that would have enshrined CDF to “Waheshimiwa Madiwani”. Kenyan MCAs are equivalent to Tanzanian councillors – Madiwani – but the former representatives wield more powers to confirm appointees of their county governor, impeach the governor subject to ratification of the national senate, and are well compensated for their roles. The internationally acclaimed “Katiba Mpya ya Kenya” solved a few problems but added more headaches to cool in the foreseeable future.
This discourse will be incomplete unless I also acknowledge that official graft is also weighing heavily on the Kenyan government’s shoulders. Nothing is done without kickbacks and the final work product if it is even done tends to be shabbily executed. Accountability is nowhere to be seen since these avaricious leaders always parlay a tribe as a shield for protection.
If he is caught red-handed with his grubby fingers inside a cookie jar, he rushes to his tribesmen with one extenuating excuse: he is a victim of political persecution! His tribesmen never fail to impress by shouting to the rooftops of their mouths that their security is besieged by political enemies of their embattled tribal point man!
Kenya cannot rely on the transfer of investments from China, Nigeria, and Ghana to foot her bills. Uncle Sam may keep his promises of bribes to chain Kenya under her modern African slaves after tossing out past “friends with benefits,” but neither Google nor Apple will be able to create the tens of millions of jobs needed to maintain the statehood of Kenya, which is now imperilled. The legitimacy to govern by whoever wins elections is under the ironclad leash of “state capture” that is going nowhere.
Beginning the assessment and resolution of the constitutional mess in earnest, and genuinely tackling the “state captive” of the government, a clarion that was showered with lip service during the last elections, will be a first step in the right direction.
