Blame Uhuru for the austerity measures in Finance Bill 2023

Former President Uhuru Kenyatta. Despite repeated warnings, his administration borrowed to finance vanity projects at usurious interest rates. [File, Standard]

Virtually every commentator is a pundit on the Finance Bill 2023 and its supposed deleterious effects on the economy. Few of these “pundits” are able to give more than a cursory overview of the bill without regurgitating the spiel that condemns the bill wholesale.

Fewer still can give an explication that shows them to have read to familiarise themselves with the special issue of the Kenya Gazette Supplement that the National Assembly Bills 2023 are published. For most, their understanding of the Finance Bill is limited to the views of their favourite politician.

It is good for citizens to know what the Finance Bill 2023 is. For starters, it is not the introduction of new laws by the Executive. It is the amendment of laws that already exist. The preamble of this bill as published in the Kenya Gazette describes it as “an act of Parliament to amend the laws relating to various taxes and duties: and for matters incidental thereto enacted by the Parliament of Kenya.”

Second, the austerity measures proposed by the bill are not the cause of present economic hardships. They are consequences of reckless borrowing and profligate spending by the former Uhuru Kenyatta administration. Despite repeated warnings, the Kenyatta administration borrowed to finance vanity projects at usurious interest rates.

The country now finds itself committing more than 60 per cent of its tax revenues to debt service. This has crowded out government funds meant for recurrent and development expenditure. The latter is a big driver of the economy. Money has ceased to circulate as it ought. The country can only raise the requisite revenues to meet its needs through taxes and borrowing.

The third point is tied to the second above. Kenya must borrow to meet its huge budget deficit. As explained, the deficit is as a result of the country’s onerous debt burden. Bretton Woods institutions like the International Monetary Fund (IMF) have been described as lenders of last resort.

That they now have a say in Kenya’s fiscal policy attests to the fact that the country is indeed between a rock and a hard place. Kristalina Georgeava, the managing director of the IMF has recommended an increase in tax revenue. She says at the current 17 per cent of Gross Domestic Product, Kenya still has headroom to increase the tax level to 25 per cent of GDP. These are not mere suggestions that can be ignored but conditions upon which the disbursement of much needed support from the IMF is predicated.

Fourth, paying taxes is not an evil. It is the right thing to do. It is an obligation on the part of every conscientious citizen. That only a small percentage of Kenyans pay taxes from their income is tragic. The tax burden should be borne equitably by every citizen. Which is what the turnover tax proposes; to facilitate compliance by simplifying tax collection so that the vast preponderance of Kenyans in the informal sector can play their part in supporting the government.

It should be borne in mind that when the Turnover Tax was first mooted, it was at a rate of 3 per cent. The reduction to 1 per cent was a Covid-19 mitigation measure. Now that the pandemic is over, it makes sense to revert to what was.

No doubt, some of the provisions of the Finance Bill are contentious. The Housing Levy, for instance, proposes a mandatory contribution of 3 per cent to the National Housing Development Fund. If implemented, it may lead to insuperable hardships on the part of employees whose salaries are already totally committed.

Questions arise: Does the country have viable alternatives to the Finance Bill 2023? The country’s political opposition has threatened resumption of mass action should the bill be passed in its entirety. Will such action resolve the country’s current fiscal woes or will it just be another episode of disruption of public order that is the matrix of opposition politics?

-Mr Khafafa a public policy analyst