Why the Uhuru rescue plan may not help Wanjiku
SEE ALSO :Renewables top 90pc of Kenya’s power“For the duration of the crisis, their (MSMEs) income/turnover tax returns will be nil, VAT returns nil. I doubt they have cash reserves for salaries – PAYE returns nil,” said Ndii, adding that the government should have slashed its spending. Indeed, by the time Uhuru unveiled the stimulus package, one of Wanjiku’s main sources of livelihood in Nairobi, Gikomba Market, had already been stifled by the virus. Gikomba, a leading open-air market for second-hand clothes in the region, will remain partially closed after Trade and Industrialisation Cabinet Secretary Betty Maina directed that the importation of second-hand clothes be stopped. Shut down Other open-air markets such as Wangige in Kiambu, Kibuye in Kisumu and Daraja Mbili in Kisii have also been shut down, rendering hundreds of thousands of people jobless.
SEE ALSO :Uhuru launches Naivasha SGR operationsOfficial figures show that nine in every 10 Kenyans earn their living from the informal sector. Yet, other than a reduction of value-added tax (VAT) from 16 per cent to 14 per cent, there was not much that Kenyans in the informal sector received from the bailout measures. Uhuru also directed the Treasury to come up with a mini-Budget that would see turnover tax (ToT) slashed from three to one per cent. The tax was introduced in January and is levied on businesses with annual revenues of less than Sh5 million. However, not very many informal enterprises had started paying this tax, so in a way, it is not a relief. Wohoro Ndoho, the CEO of Euclid Capital and a former director of general public debt management at the Treasury, agreed that the tax “measures were focused on a small part of the economy.” He, however, noted that it was the only thing the government could have done given its meagre resources. He also thinks the government is only testing the waters and might return with more comprehensive measures. Those earning a gross salary of up to Sh24,000 a month were granted full tax relief on their salary, also known as pay as you earn (PAYE). The rest will benefit from a reduction of PAYE from 30 per cent to 25 per cent. Corporations will also see the tax on their profits, corporate tax, reduce from 30 per cent to 25 per cent starting April, as the government seeks to ease the cost of doing business for firms that have started catching the virus’ fever. The confirmed cases of people infected with Covid-19 had hit 31 as on Thursday. Moreover, while a reduction in consumption tax would help ease the cost burden with lower VAT, the poor might not benefit from the measure as most of the items they spend money on have already been either exempted or zero-rated. For a poor person in Nairobi earning less than Sh24,000, almost half of their income goes to food. While supermarkets are almost the only place where middle-income Kenyans in Nairobi can buy food from, they are anathema for the poor who buy most of their food from open markets and eat from their local kibanda, or food stall. Food from a kibanda does not attract any tax, while deli products attract a levy of two per cent. Additionally, flower farms and tea and coffee plantations used to employ hundreds of thousands of poor Kenyans. Now, without a market, most of them are closing their businesses. There are no new foreign markets. Almost every nation in Europe is on lockdown or has issued travel restrictions. No fiscal space Economists like Ndii insist that no amount of tax relief will help the majority of Kenyans. Instead, he proposes a lifeline fund, which would see both business owners and workers feed their families. It is what is being done in a number of developed countries that have put together stimulus packages. However, Mr Ndoho noted that the government does not have the fiscal space to undertake such measures, saying Uhuru has found himself in a ‘prisoner’s dilemma’ of sorts. “He can’t cut taxes completely because the government needs those taxes for medical costs,” he said, adding that the country is wary of sliding into the Italy situation where thousands of people have died from the disease.
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