State's plans to boost revenues are anti-business, says institute

A public finance think tank has faulted the government's new plans to fix its finances through aggressive taxation which includes spying on mobile money transactions.

This is on the back of a battered economy, said the Institute of Public Finance(IPF), in a report on Kenya's fiscal state which cut the projected country's growth to five per cent this year - lower than the 6.1 per cent envisioned by the government.

Dubbed The Macro-Fiscal Analytic Snapshot, the report reviews some of the measures taken by the State to boost the exchequer's liquidity including fiscal consolidation and a plan to widen the tax base.

The projected growth of 5.0 per cent for 2023, the report cites, against National Treasury's 6.1 per cent, is a result of poor performance in agriculture, global economic slowdown, fiscal consolidation efforts by the new administration and increased food prices.

The effect of such a drop in the growth of the gross domestic product(GDP) was highlighted by National Treasury in the released Budget Policy Statement (BPS).

The statement noted that if the projected real GDP growth in 2023 (medium term) was to reduce by one per cent (from 6.1 to 5.1 per cent), revenues would decline by Sh11.2 billion more than the decline in expenditure by Sh6.1 billion resulting in an increase in the fiscal deficit of Sh5.1 billion in the financial year 2023/24.

Bernard Njiri, a senior research analyst at IPF, weighed in on the government's plan to reduce the fiscal deficit by 4.2 per cent of GDP this year which is part of the plan aimed to reduce on the state's borrowing.

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"It is really ambitious to cut the budget by more than one per cent at a time when the economy is struggling and we really need to increase our social spending to cushion poor households," he said during the launch of the report in Nairobi yesterday.

Amidst the plan to reduce the fiscal deficit, IPF foresees a situation where the debt level could exceed the forecast for the 2023/24 outlook.

"And this is because we expect growth setback and this (growth) is also intended to finance the 2023/24 budget as proposed to BPS which could also lead to increase in public debt," said Njiri.

The report references the medium-term outlook which involves a reduction in expenditures as a share of GDP noting that despite robust projected growth, this will result in stagnant real expenditure over the period and consequently a drop in spending per capita.

"This is even before the Sh300 billion cut to the 2022/23 budget proposed by the current administration is considered," the report says. "On the positive side, the government seems to be more realistic about revenue projection than the previous case."

According to the President William Ruto administration, Kenya has the potential to raise Sh2.8 trillion which will help fund the Sh3.6 trillion 2023/24 budget.

Apart from targeting the wealthy, the government, through the taxman, seeks to spy on Kenyans' mobile wallets to net more taxpayers.

IPF Chief Executive Officer James Muraguri said even as the government seeks to raise Sh2.8 trillion by targeting individuals and businesses - the majority being from the informal sector - there are unanswered questions in this strategy. For example, have the informal businesses been formalised?

"The government is mentioning that we have the potential of raising Sh2.8 trillion from small and medium enterprises (SMEs )in this country but what investments are we making? Of course, we know there is Hustler Fund but is Hustler Fund the bullet cure to that?" posed Muraguri.

Muraguri said there is a need for more explanation to be given on what exactly is going on owing to the fact that all these efforts are targeted at funding the Sh3.6 trillion budget.

"We need to see much more explanation on what is happening," he said. "We have seen sectors that funding is reducing and others funding is increasing."

Muraguri said as a think tank, IPF is keenly looking at the government's medium-term revenue projections that appear more realistic however, with the intention to raise tax revenue to 25 per cent of GDP by 2030, there is a lot of work that needs to be done to ensure ordinary tax revenue targets are met.

In the medium term, the government aims to raise 18 per cent of GDP as tax revenue.