Kenyans are preparing for challenging times ahead as lawmakers have given their approval to tax increases that are even unpopular with supporters of President William Ruto, who had pledged to reduce the cost of living. The doubling of the tax on petroleum products, from 8 percent to 16 percent, is expected to have a widespread impact on East Africa’s economic hub, leading to price hikes for goods and services.
Disillusionment among some of President Ruto’s supporters is palpable. Evelyne Adhiambo, a hairdresser, expressed her disappointment, saying, ‘He said he was going to make life easier for us hustlers. We are now unable to afford food. Prices are higher than they were before elections.’
Under the new tax regime, individuals earning above KSh500,000 ($3,500) will now face a tax rate of 32.5 percent, while those with incomes above KSh800,000 shillings will be subject to a 35 percent tax. Coupled with additional taxes on housing (1.5 percent) and medical insurance (2.5 percent), many Kenyans will have to part with around 40 percent of their income. Teresia Kathina, a civil servant with 26 years of experience, lamented that this would be the highest tax burden employees have ever faced, particularly burdensome given the inflation rates.
Economist Aly Khan Satchu highlighted that the new law imposes the highest tax rate across all income segments. Small businesses are also grappling with the impact, as the tax on their total sales increases from 1 percent to 3 percent. Business owners fear that this move will deal a fatal blow to already struggling enterprises that have been reporting losses since the Covid-19 pandemic began.
Moses Munyao, a wholesale shop owner in Nairobi, expressed his frustration, stating, ‘They are essentially telling us to shut down because we will not take loans to pay taxes.’
President Ruto, who campaigned on a platform of reducing the cost of living, now justifies the increased taxes as a means to reduce borrowing, considering the government’s staggering public debt of KSh9.4 trillion shillings ($67bn) and the high risk of debt distress, according to the World Bank.
While President Ruto is currently attending a climate change and poverty summit in Paris, he is expected to sign the new bill into law before the start of the government’s financial year on July 1. A court hearing to challenge the new tax package is yet to be scheduled.
The higher tax on petroleum products has been a contentious issue, with the previous administration opting to introduce subsidies to shield consumers from the increase. According to economist Aly Khan Satchu, the petrol tax aligns with the International Monetary Fund’s long-standing recommendation and may have served as a ‘soft precondition’ for the recently announced $1.1bn IMF package for Kenya. However, Satchu cautioned that the tax would have ripple effects throughout the economy, leading to price hikes and further squeezing incomes already under pressure.
Moreover, Satchu highlighted that the tax on small businesses aims to increase the taxpayer base but will harm loss-making enterprises. He noted that some Kenyans believe this sector has largely evaded taxation, and the 3 percent tax rate remains low enough to discourage tax evasion measures.
(with AP)
