As the Kenyan government debates the Finance Bill, 2024, many citizens are anxiously speculating about its potential impacts.
President William Ruto’s administration aims to raise the country’s tax-to-revenue ratio to 20-22 percent to reduce debt dependency.
If the proposed bill is passed, it will bring significant changes that will affect Kenyans across various economic strata.
Increased Tax Burden
One of the most immediate consequences will be an increased tax burden. The bill proposes raising the average tax rate from 14 percent to 16 percent in 2024, with a goal of reaching 22 percent by 2027.
This increase will affect both individuals and businesses, potentially leading to higher prices for goods and services as companies pass on the additional costs to consumers.
Impact on Low-Income Households
For Kenyans struggling at the bottom of the economic pyramid, the proposed tax increases could be particularly oppressive.
Higher taxes on essential items and services will strain household budgets, making it more difficult for families to afford basic necessities such as food, healthcare, and education.
This is in stark contrast to President Ruto’s campaign promises of improving living standards for the “hustlers” – the informal workers and small business owners who form a significant part of the economy.
Agricultural Sector Under Pressure
Farmers are likely to feel the pinch as the government plans to target the agricultural sector to raise revenue. Increased taxes on agricultural inputs and produce could lead to higher production costs.
This may result in lower profits for farmers and higher food prices for consumers, exacerbating food security issues in a country where agriculture is a primary source of livelihood for many.
Vehicle Owners and Mobile Transactions
Vehicle owners will also face higher costs if the bill is passed. Increased taxes on fuel and vehicle-related expenses will raise transportation costs, impacting not only personal vehicle owners but also public transport users and the logistics sector.
Additionally, higher taxes on mobile transactions could discourage the use of mobile money services, which are vital for many Kenyans, especially in rural areas where banking infrastructure is limited.
Economic Growth and Business Environment
While the government’s intention is to boost internal revenue and reduce reliance on debt, the increased tax burden could have mixed effects on the economy. Higher taxes might deter investment and slow economic growth as businesses face higher operating costs.
On the other hand, if managed well, the additional revenue could be used to improve infrastructure, healthcare, and education, which could have long-term positive impacts on the economy.
Government’s Perspective
From the government’s standpoint, the proposed Finance Bill is a necessary step to ensure fiscal stability and reduce the country’s debt distress.
President Ruto has emphasized that Kenya’s tax revenue is lower compared to its regional peers and other countries like France, where tax-to-GDP ratios are significantly higher.
The increased revenue is intended to fund crucial public services and development projects, aiming for a more self-sufficient economy.
The passage of the Finance Bill, 2024, will bring about significant changes for Kenyans, with increased taxes affecting various aspects of daily life and economic activities.
While the government’s goal of reducing debt dependency and improving fiscal stability is commendable, the potential adverse effects on low-income households, farmers, and businesses must be carefully considered.
As the bill moves through the legislative process, it is crucial for policymakers to weigh the short-term hardships against the long-term benefits, ensuring that the measures do not disproportionately burden those already struggling in the current economic climate.