Dashed hopes: Kenyans to wait longer for tax cut as inflation bites

The government could consider lowering taxes once the base is broadened to new targeted levels. [iStockphoto]

Hard-pressed Kenyans should tighten their belts further after the government said taxes will remain elevated for the medium term.

The government is pulling all strings to pay off massive public debt which is approaching Sh11 trillion and avert defaults that would bring disastrous consequences.

The William Ruto administration, which has been under pressure to lower the cost of living, now says Kenyans will wait longer for the lowering of taxes, killing the hopes of a soft landing for millions of Kenyans who expected the burden to ease this year.

The Kenya Kwanza administration says lower taxes could be in the offing in the longer term should its broad plans to raise additional taxes pay off and more Kenyans have been brought into the tax bracket.

National Treasury Principal Secretary Chris Kiptoo told The Standard in a recent exclusive interview that the government could consider lowering taxes once the base if broadened to new targeted levels.

“Over the medium term our efforts are going to raise more revenue, both tax revenue and non-tax revenue” said Dr Kiptoo.

The Cabinet recently passed a new tax policy that outlines a plan to raise and increase the ratio of taxes to the gross domestic product.  

Kiptoo said once this is achieved, the tax threshold could come down over the medium term.

He said the State plans to widen the tax net to more than 12 million Kenyans who are not paying tax and thus ensure equity.

Presently only about three million Kenyans are carrying the burden of taxes and funding the economy, the PS said.

Economists, however, say the government must go back to the drawing board to come up with new strategies to address the cost of shilling and end its punitive taxes.

“The recent scramble to tax everything everywhere all at once is backfiring; businesses are so tangled in rules they are not being competitive,” said Nairobi-based economic analyst Deepak Dave of Autonomi Capital.

The latest pronouncement is likely to rattle Kenyans at a time when additional taxes imposed by the government are stoking tensions amid the high cost of living.

Inflation, which is the cost of living measure, has been on an upward trend since the beginning of 2023.

Kenyans are forking out more to purchase basic commodities as the shilling has weakened due to external pressures.

The financial hardships pose a problem for President Ruto’s administration, which was elected on a platform of lowering the cost of living, rattling its support base.

Last year, the opposition led by Azimio la Umoja-One Kenya coalition staged protests demanding the scrapping of the Finance Act 2023 and new deductions it introduced, such as the Housing Levy that was outlawed by the court, and an increase in value-added tax.

The past two weeks have seen various groups maintain pressure on the government, arguing that vast sectors of the population were hurting.

Among them were the National Council of Churches of Kenya, which called on Ruto to “listen to the cries” of Kenyans by lowering the cost of living.

“We strongly recommend that you provide reprieve for the people by lowering taxes and freezing the increment of statutory deductions for health and retirement insurance.

“Instead, we urge measures to promote growth of export-oriented businesses. This will earn the nation the much-needed foreign exchange and also increase tax income without unnecessarily aggravating the people,” said the council.

That came days after Azimio said it would challenge Ruto on the high cost of living in court, even as it warned of a return to street protests.

“The litigation will only be one avenue. Other ways are being worked on whose ultimate aim is to force the regime to be sensitive to the tribulations of the people or to enable the people to take such steps as they deem necessary to rid themselves of this yoke and this regime,” said the coalition in a joint statement read by Narc Kenya leader Martha Karua.

On the same day, the Kenya County Government Workers Union (KCGWU) demanded that Ruto reduce taxes over their negative impact on payslips, calling instead for a wage increase.

“The last review was long ago, before the new taxes. County workers are struggling to feed themselves and educate their children,” said KCGWU General Secretary Roba Duba.

Civil society groups have also joined the fight, adding their voice in court cases such as the one that recently resulted in the fall of the Housing Levy.

But Ruto played deaf to demands from across various quarters, the same way he has ignored calls to restore fuel and unga subsidies, which he has dismissed as “irresponsible”, arguing that it would sink Kenya deeper into debt.

[Additional reporting by Emmanuel Too]