The International Monetary Fund (IMF) has asked the Kenyan government and other countries in Sub-Saharan Africa to slow down on introducing new taxes.
Amid backlash over the implementation of the Finance Act 2023 and the proposal of new levies, the Bretton Woods institution wants the government of Kenya to consider the sustainability of new policies.
The multilateral lender which has been influencing Kenyan economic decisions, suggested that the introduction of new taxes should be subject to public opinion.
“Sustainability of new policies depends on the government’s ability to win over public opinion either by showing that reforms generate rapid benefits or by making a case for their desirability on longer-term grounds,” the IMF stated on Tuesday, September 26, as reported by The East African.
Why are additional taxes retrogressive?
FX Pesa lead market analyst explained in an interview with TUKO.co.ke that the government may collect less revenue despite additional taxes. This is because unstable economic policies make doing business costly, paving the way for struggling companies to exit the market or downsize operations.
“Increasing levies will end up hurting the tax base. Foreigners will exit and invest in other countries. The tax base will have shrunk when we realise that tax revenues are lower and go for the eventual repealing.
With the country currently facing rising food and energy prices, and the government increasing taxes while the Central Bank is raising interest rates, a weakening shilling may push people and corporations to look for a more stable way of storing value,” Kamau explained.
Which taxes does Kenya plan to introduce?
President William Ruto plans to raise more revenue through other proposed levies after signing the Finance Bill 2023 into law. This is according to the Draft Medium-term Debt Strategy for 2024/25 to 2026/27 financial years.
Treasury proposes Motor Vehicle Circulation tax to be paid annually by all motor vehicle owners at the point of acquiring insurance cover.
Another suggestion is the introduction of a final withholding tax on agricultural produce not exceeding 5% of the value of the produce delivered through cooperatives or other organised groups.
Others are the introduction of VAT on services in educational institutions that are not directly linked to education and the re-introduction of the minimum tax.
