Pain of new taxes being felt across EA
This is coming at a time when it is hard to secure external funding
A JOINT REPORT
Now, they are raiding their citizens' pockets to plug the expected shortfall and deliver on their promises.
Kenya is already finding it difficult to fund the operations of its expanded government, amid falling revenue collections, rising public debt and an underperforming economy.
On Tuesday, Kenyan legislators voted to reduce this year's $30 billion budget by $376 million after it emerged that the country will not collect enough revenues in an economy that grew only 4.9 per cent in 2017, the slowest in five years. This cut, however, fell short of the $546 million that National Treasury Cabinet Secretary Henry Rotich had recommended.
On Thursday, legisltaors voted to introduce 8 per cent VAT on all oil products, and President Uhuru Kenyatta signed it into law the same day.
The country's total expenditure has been rising over the past 10 years, from 22.3 per cent of GDP in the 2008/2009 fiscal year to 27.5 per cent of GDP in 2016/2017. The situation worsened after it adopted a devolved system of government in the 2013/2014 fiscal year. The devolved system ushered in county governments and increased the number of Members of Parliament to 418 from 222, among other constitutional office holders.
It is argued that with Kenya's current revenue levels, and the increased spending pressures as a result of the devolved sys- tem of government, Treasury is financially constrained and has to survive on borrowing.
Parliament has in the meantime voted to cut spending on infrastructure projects such as roads to ensure the government survives this rough patch.
An attempt by the government to curb revenue leakages by abolishing and merging poorly performing state corporations was met with resistance, largely due to institutional wrangles, lack of political will and the National Treasury's unwillingness to take the lead in pushing through the reforms.
Kenya's 2018/2019 budget is 29 per cent more than the revised budget of the 2017/18 fiscal year but a huge chunk of it — estimated at 25 per cent — is going towards repayments of the national debt, which is currently estimated at Ksh5 trillion ($50 billion), while nearly 50 per cent of this budget is expected to go towards salaries for public officers.
According to economists at the Nairobi-based think tank Institute of Economic Affairs, Kenya's overall revenue mobilisation in relation to target has continued to underperform largely due to a weak economy. They raid the government should enforce austerity measures to stem the increasing expenditure bill especially the rise in recurrent expenditure, including cutting non-core expenditure items such as travel and conferences.
“The government should be wary of a subdued economy. Revenue performance is strongly linked to economic growth and despite some positive signs of economic rebound there are a number of policy concerns that may affect economic growth and hence undermine revenue collection,” says the think tank.
It is feared that the subdued credit to the private sector, especially to the small- and medium-enterprises, which is blamed on interest rate capping, could stifle economic growth this year.
Kenya's economic growth also remains unpredictable and may further be dampened by external factors such as rising international oil prices.
Mr Rotich introduced new taxes in an effort to fund his $30 billion budget for the 2018/2019 fiscal year, as the country faced budget financing challenges, compounded by last week's expiry of an International Monetary Fund's $1.5 billion stand-by loan facility for balance of payments support.
The fiscal deficit reduction targets were set by the IMF when it granted a precautionary credit deal two years ago.
Treasury had budgeted for $347.74 million to be collected through a 16 per cent value added tax on all oil products, but President Uhuru Kenyatta
A development-centred budget has enabled Rwanda realise 26 per cent of the targets stipulated in its Vision 2020.
Kenyans were this month hit with