(Bloomberg) -- Kenya’s finance ministry is working to bring back some of the tax measures that the nation’s lawmakers were forced to abandon after weeks of deadly protests.
The taxes that formed part of the Finance Bill 2024 and aimed to raise additional 344 billion shillings ($2.7 billion) in the current fiscal year were scrapped after the demonstrations led to the deaths of more than 61 people and forced President William Ruto to sack his entire cabinet, including then-Treasury Secretary Njuguna Ndung’u.
“Our team is already working on some of those proposals that were in the Finance Bill 2024, which we can now put together and take back to parliament, not as a Finance Bill, but as other proposals,” John Mbadi, the new treasury head, said Monday as he took over from Ndung’u. “We will do extensive public participation because we don’t want to be blamed again, to be accused of introducing things that are insensitive without considering the plight and concerns of Kenyans.”
Some of the proposed taxes had included increasing levies on essentials such as bread and diapers. The axed bill had been the second since Ruto came to power in 2022. The first one introduced a contentious housing tax, doubled value-added tax on fuel and hiked the rate for the top salary-tax band to 35%.
An appellate court last month quashed those taxes, saying the measures were unconstitutional.
Ruto’s administration has been under pressure to shore up tax collection and slash borrowing under a $3.6 billion funding program agreed with the International Monetary Fund to address Kenya’s debt vulnerabilities. At about 70% of gross domestic product, its debt is considered at high risk of distress.
The Treasury had to revise its budget to accommodate the drop in expected revenue after it abandoned the new proposals, thereby widening its fiscal deficit to 4.2% of gross domestic product from an initial 3.3%.
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“It would be wrong and an insult to the people of Kenya to reintroduce the finance bill,” Mbadi said. “But there are provisions in that bill that would have helped the country to grow.”
Measures under consideration include extending a tax amnesty and plugging leakages through “fictitious” value-added tax refunds, Mbadi said. About 65% of the Kenya’s 525 billion shillings of tax expenditure was in refunds, he said. Some critical commodities that have a direct impact on the cost of living will be tax-exempt, rather than zero-rated, he said.
Zero-rated goods are not taxed at the point of sale but producers can claim VAT on inputs, while makers of exempt goods can’t demand such refunds.
“The government still aims to move some critical items from zero-rated schedule to tax-exempt, which would stop companies from claiming tax exemption on some inputs, but would therefore increase the price of finished goods to consumers,” BancTrust & Co. said in a note to clients.
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--With assistance from David Herbling.
(Updates with Treasury secretary’s comments from eighth paragraph.)
©2024 Bloomberg L.P.
