Kenya To Present Budget With New Tax Hikes

Kenya's finance minister is due to present Thursday the East African economic powerhouse's biggest ever budget, alongside a contentious finance bill that contains a raft of new or increased taxes.

President William Ruto's government has drawn up a four-trillion-shilling ($31.1-billion) budget for 2024/25, up from 3.75 trillion shillings it approved last June for the current fiscal year.

Parliament has already approved the spending plan, but the separate finance bill aimed at filling the coffers of the cash-strapped government could lead to an acrimonious session.

The bill -- defended by the government as a necessary measure to cut reliance on borrowing -- has drawn sharp criticism from politicians, employed Kenyans and industry groups.

It contains a host of tax hikes expected to hit the financial services, manufacturing and retail sectors.

Among the most contentious provisions is a motor vehicle tax set at 2.5 percent of the value of the car and the reintroduction of VAT on bread.

Critics have warned the new measures will further hit people struggling to make ends meet as the cost-of-living crisis bites.

Similar tax hikes last year led to several opposition protests which sometimes degenerated into deadly street clashes between police and demonstrators.

Economic analysts say while the "hostile" taxes could slow the economy, the bill is expected to pass because of the large parliamentary majority enjoyed by Ruto's party.

"The biggest impact is that we might end up slowing down the economy and if the economy slows down, the government might not raise as much taxes as expected," XN Iraki, economics lecturer at the University of Nairobi, told AFP.

Financial consultant Erastus Omolo Kwaka agreed, saying: "A hostile tax environment does not benefit the country."

Kenya's parliamentary budget office warned in March that the tax authority was likely to miss its revenue collection target for the current financial year ending June 30 by as much as $2.6 billion.

Opposition leader Raila Odinga has described the new taxes as "insensitive as they are callous".

"We cannot afford taxation measures whose end result is to inflict more pain on the poor who expect relief," he said last week.

But fresh protests are less likely over the new taxes after Odinga struck a rapprochement with Ruto to back his bid to chair the African Union Commission.

Kenya is one of the most dynamic economies in East Africa but about one third of the country's 51.5 million people lives in poverty.

Overall inflation has remained stubbornly high, at an annual rate of 5.1 percent in May, while food and fuel inflation stood at 6.2 percent and 7.8 percent respectively, according to central bank data.

"We are complaining about high rates of unemployment but taxing the few with jobs into poverty," high school teacher Ivy Kirui, 36, told AFP.

"This has turned out to be a very punitive government and catch me dead if I ever vote for them again."

Parliament must pass the final version of the bill before June 30.

"I no longer know if the politicians have our best interest at heart. For now, I just live each day at time," said 51-year-old cobbler John Shitanda.

The government has forecast average GDP growth of 5.2 percent between 2024 and 2026.

The World Bank said last week that while Kenya's real GDP growth had accelerated last year to 5.6 percent from 4.9 percent in 2022, it was expected to slow to five percent this year.

The recovery of the key agricultural sector -- following improved weather conditions -- drove 2023's growth, it said, with tourism also contributing to a stronger performance.

Kenya's total public debt amounts to around 10 trillion shillings, or around 70 percent of GDP, with the International Monetary Fund this week agreeing an additional $1.1-billion funding.