Kenya's planned tax hikes spark anger
June 9, 2023
Baker Sarah Ndung'u has a popular stall at the bustling Muthurwa markets in downtown Nairobi. She sells a wide selection of baked goods, from loaves of bread to mandazi, the sweet, soft bread beloved by Kenyans for dunking in their tea.
The single mother worries about the future of her business if the tax increases proposed by the government of President William Ruto are approved by parliament.
"I don't know how I'm going to survive if they raise taxes," Ndung'u said. Six months ago, she would sell a whole cake for 1,500 Kenyan shillings ($13 or €12). Now though, the cost of ingredients has risen so much that even though her customers now pay 2,500 Kenyan shillings for the exact cake, her profit margin has shriveled.
If the Finance Bill 2023 is passed this month, as expected, Ndung'u faces paying a 3% tax on turnover, or gross sales tax, up from 1%. It's just one of a bevy of changes contained in the bill.
More small businesses like Ndung'u's would also have to pay the turnover tax as the government plans on lowering the threshold for the tax to kick in.
"There are no subsidies, and sugar is expensive. Every day is a struggle to make ends meet," Ndung'u told DW. "More taxes will only make it harder for us small business owners to survive."
Angry Kenyans
President Ruto was elected in August 2022 on a pledge to improve the life of Kenyans like Ndung'u and bring down the costs of basic commodities in an economy impacted by the COVID-19 pandemic, price hikes fueled by Russia's war in Ukraine and widespread drought.
But amid shortfalls in revenue collection, high inflation, and massive public debt of $74.1 billion, Ruto's government has had a tough time meeting these promises, drawing the ire of Kenyans.
His decision to scrap subsidies on maize flour and petrol shortly after his election fueled further discontent. So when Ruto announced widespread tax hikes and new taxes, many of which will come into effect on July 1, people's anger spilled over.
'Misery and hardship'
They're worried the Finance Bill will mean even more hardship in East Africa's largest economy.
"[The bill] is going to create more misery and havoc to majority of Kenyan citizens," economist Samuel Nyandemo, a senior lecturer at the University of Nairobi, told DW's Africalink program.
In particular, the doubling of the sales tax on petroleum products such as petrol and kerosene from 8% to 16% is "one of the top three pain points for most people," said Ken Gichinga, the chief economist at Mentoria Economics, a Nairobi-based consultancy.
"Dealing with the removal of the fuel subsidy was already a challenge," Gichinga told DW. "Now they have to deal with additional taxes, particularly people at the bottom end of the income table. I think that transition has been too fast and has been too uncomfortable."
"It cuts across the entire economy and can risk an entire slowdown of the economy."
Regular protests
Business owner James Ochieng joined hundreds of people protesting earlier this week in Nairobi against the bill.
"The government needs to listen to the people. These tax proposals will only increase the cost of living for ordinary citizens. The Finance Bill favors the wealthy while burdening the already vulnerable people," Ochieng told Turkey's Anadolu news agency.
Young people are especially upset with the government's plan for a 15% withholding tax on digital content, including brand partnerships and sponsorships.
Kenyan comedian and content creator Alex Mathenge said the government should help young people before taxing them.
"You cannot milk a cow which you've not given grass," he said in an interview with KUTV, the channel of Kenyatta University.
"As digital creators, we look for a way to make a living because the government could not provide an environment where we could get jobs."
Housing subsidy
Perhaps the most contentious issue in the bill is the proposal to make employees pay a mandatory 3% housing levy that employers match.
Kenyans contributing to the fund are expected to buy houses through the affordable housing program.
The project "will deliver decent housing units for low-income earners at affordable rates," Deputy President Rigathi Gachagua said earlier this week.
It's universally accepted that Kenya desperately needs cheaper housing. A 2017 World Bank briefing found that Kenya had a housing deficit of over 2 million units, with more than three in five urban households living in slums.
Paying for something one has
XN Iraki, an associate professor at the University of Nairobi specializing in economic growth, says people are upset about the housing fund for several reasons. Those who already have a house don't understand why they should pay for something they don't need, while others worry the promised dwellings won't eventuate.
"They aren't sure that the money will be put to the right use, and they will actually end up with houses," Iraki told DW.
In fact, he believes that the lack of trust in Kenya's public sector is a part of the resistance to the Finance Bill.
Analysts have described corruption in Kenya as "endemic" and "pervasive" and "dominating the provision of public services." The country rates 123 out of 180 countries on Transparency International's latest corruption index.
"I think people understand that we need taxes to run the government and pay for services. But the biggest worry is where that money will go to," Iraki told DW. "So corruption really affects our perception and our propensity to pay taxes."
Eddy Micah Jnr contributed to this article.
Edited by: Chrispin Mwakideu