The government’s new taxation measures have raised a hue and cry from the day the Finance Bill 2023 was tabled in Parliament. The public anger went up sharply when President William Ruto signed it into law in June. Despite the Finance Act’s suspension by the court, some of its provisions have already been implemented by the government such as the 16 per cent value added tax on fuel, which has increased the cost of living significantly.
One of the reasons cited for the tax measures is the stringent conditions set out by the International Monetary Fund (IMF) for it to lend money to the government, which is severely short of cash and is struggling to even pay public sector salaries on time. The IMF, by its own pronouncements, believes that there is more room for the government to increase its revenues; more so by removing tax exemptions and subsidies - notwithstanding that most of these subsidies have been used to cushion the vulnerable segments of the population. While not all of them worked as intended, they reduced the financial burden on the low-income population.
The IMF and its sister global lender, the World Bank, are no strangers to controversy in Kenya. On numerous occasions they have stepped in to provide much-needed finance to the government, but have left in their wake a country discontented and sometimes worse off from the ‘assistance’. The public anger against the new taxes is greater now because they come hot on the heels of the Covid-19 pandemic and a prolonged drought that made food scarce and expensive for the majority of citizens. They have added salt to the wound.
It is inconsiderate for IMF to push for more taxes when people are suffering and the economy is barely above water. Indeed, the global economy seems to be heading towards a recession accelerated by Russia’s war in Ukraine. The war has disrupted global supply chains, meaning that basic items such as food are not reaching the market, and unemployment has risen.
At a recent forum in France, leaders from the developing world called for re-engineering of the global lending structure, which favours the richer countries. For instance, the developed countries are able to use their economic muscle to get finance at much lower interest rates, meaning that the repayment burden is felt more in the poor nations. In addition, most of the borrowing is pegged on the dollar, which increases the debt burden when the US currency strengthens. Kenya’s debt, for example, increased by Sh680 billion in the first six months of the year due to the shilling weakening against the dollar, according to the Controller of Budget.
The IMF and World Bank need to change the way they relate with the developing countries. They cannot keep on giving the same prescriptions for decades. In fact, some scholars have been bold to say that the lenders no longer serve the interests of a globalised world, more so the emerging nations that would benefit most from financial support. It’s time for more equity in conditions. In the absence of that, Kenya and other countries that feel aggrieved should pull away from the IMF and its finances. The people should come first.