Ruto's first budget breaks his promise on high living costs

A customer selects bread from Khetia Supermarket in Nyeri. [Kibata Kihu, Standard]

What has become a phrase set to haunt President William Ruto for months, or even years, to come is "Nikiweka Bibilia chini" (Once I put down the Bible).

The President uttered the words in a show of might on how he would root out cartels that are deeply entrenched in different sectors of the economy.

The words were taken to mean that he would go head-on in addressing what he termed as the former regime's inadequacies to tackle problems that Kenyans had been grappling with.

"Nikiweka tu Bibilia Tuesday chini, mimi na wao," (Once I put down the Bible on Tuesday, it's me versus them) said Ruto on Sunday, September 11, ahead of his swearing-in on Tuesday, September 13.

Nine months later, President Ruto is being criticised for following in his predecessor's footsteps. If anything his actions, observers note, will further push up the cost of living.

Nothing speaks more to the difficult times that Kenyans are facing than his first budget.

In the Finance Bill 2023, which is seeking to grow tax revenues to finance the Sh3.6 trillion budget over the 2023/24 financial year, the National Treasury has sought to increase the cost of different products through new and higher taxes.

Among them is doubling Value Added Tax (VAT) on fuel to 16 per cent, which is expected to affect the cost of nearly everything including essentials such as food.

The bill has also proposed a 1.5 per cent housing levy that is being opposed due to the impact it will have in reducing the take home for Kenyans employed in the formal sector.

It also proposes to increase taxes for the very small businesses that pay turnover tax to three per cent from one per cent. In all, the Finance Bill 2023 is expected to increase the cost of living for Kenyans.

Lowering the cost of living was one of the issues that William Ruto rode to power on, promising to ease the suffering of Kenyans while harshly criticising his boss at the time, President Uhuru Kenyatta.

"We are forming a government that will turn around the economy and put money in the pocket of common mwananchi," said Ruto before the elections last year, which he noted the Jubilee administration had failed to do.

"Do you know why these people have let the price of maize flour go up?" he posed when on the campaign trail last year referring to the then President Uhuru Kenyatta and his preferred candidate in the 2022 elections, Azimio's Raila Odinga.

"It is because they have never slept on an empty stomach. Even as we speak of the price of flour, they do not understand what we are talking about," he added.

The cost of living has, however, remained high. Plans to bring in thousands of tonnes of maize, wheat, cooking oil and other essentials to ease high prices appear not to be yielding much. Year-on-year inflation in May rose to eight per cent from 7.9 per cent, still above the government's preferred range of 2.5 per cent and 7.5 per cent.

President William Ruto during the International Labour Organization Summit in Geneva, Switzerland. [PCS]

While prices of certain food items have declined, this has largely been due to the recent rains. The cost of maize flour and bread, staples on many breakfast and dinner tables in the country, have stayed high.

A two-kilogramme packet of maize flour is retailing at over Sh200, the same as was the case last year when the new administration was taking over. Government officials have in the past said this has reduced and is retailing at about Sh160.

The cost of bread has in recent weeks increased to about Sh65 for a 400-gramme loaf, the latest spike attributed to sugar prices that nearly doubled in April.

President Ruto has since said the cost of living and the other challenges that Kenyans are facing cannot be sorted out overnight, that "there are no miracles" and that this has to be done "systematically".

The government has in place a fertiliser subsidy that is expected to increase agricultural production. Two weeks ago, President Ruto said the cost of living is an issue that keeps him up at night.

"The cost of living is keeping all leaders, including myself, awake and this is precisely as it should be," he said on June 1 this year.

Now Treasury wants VAT on petroleum products to go up to 16 per cent from eight per cent. This is expected to increase the per-litre price of diesel and super petrol by Sh12, with the change expected to be effected July 1.

This will be in addition to removing subsidies on fuel that have pushed pump prices to record highs. The higher taxation is worlds apart from what the president had been pushing for as he sought the job.

President Ruto in April last year queried what the government had been doing with funds that are aimed at cushioning Kenyans from fuel price fluctuations.

He was referring to the Petroleum Development Levy, which has a price stabilisation component and is financed by motorists who pay Sh5.40 per litre of petrol and diesel.

"There exists a consumer protection mechanism to cushion Kenyans from adverse fluctuation in fuel prices. This mechanism is financed by the taxpayer at the pump through the fuel levy fund," he said last year.

Ruto acknowledged the importance of petroleum products to the economy and the impact it might have on the cost of other essential goods.

"As a result of the fuel crisis, we have serious price fluctuations in all basic food items because, to a great extent, they are dependent on the price of fuel," he said.

Kenya's 2023-24 budget deficit is Sh720 billion. [Wilberforce Okwiri, Standard]

The National Assembly's Committee on Finance rejected pleas by Kenyans to re-look at the plan to increase VAT on fuel. It said the VAT rate of eight per cent had made it complex for the government to administer the tax.

"The committee noted that the existing VAT rates were not standard and thus intended to harmonise the rate to 16 per cent including for petroleum products. The committee rejected the proposal (opposing the introduction of 16 per cent VAT on fuel)," said the Finance Committee in its report on the Finance Bill, in which it also noted that the proposal was among the most unpopular in the Finance Bill.

During public participation, during which the Committee got views from Kenyans on the Bill, the Federation of Public Transport Sector noted that if effected, the higher tax could make running public service vehicles in the country impossible.

The Federation asked the committee to "retain the initial rate of eight per cent of VAT on fuel because an increase will push PSV operators out of business with the shilling continuing to depreciate, it means that the fuel prices will continue to increase. Furthermore, the operators will be forced to pass the burden to passengers by adjusting fares upwards."

To Treasury's credit, the Finance Bill has however proposed to scrap VAT on cooking gas, a move that many Kenyans welcome and note that it would reduce the cost of gas that had been on the rise.

Other pain points for Kenyans in the administration's maiden budget include the withholding tax on digital assets at three per cent, although this has been reduced by the Finance Committee from the earlier proposed 15 per cent.

Small businesses in the beauty industry such as salons and nail bars will be hit by the proposal to introduce a five per cent excise tax on beauty products.

This is even as it proposes to move small and medium enterprises (SMEs) earning over Sh25 million per year to the corporate tax band, which analysts note would make them pay higher tax rates of 30 per cent on their income, and also make it more difficult to comply with.