The International Monetary Fund (IMF) has recommended the Kenyan government and other Sub-Saharan African nations to implement new tax measures gradually. This advice comes in the wake of public backlash over the introduction of the Finance Act 2023 and proposals for additional levies.
On Tuesday, the IMF highlighted that the success of new policies largely depends on the government’s capacity to sway public opinion by demonstrating that reforms yield immediate benefits or by justifying their desirability based on long-term considerations. The IMF’s stance is that any introduction of new taxes should take into account public sentiment.
FX Pesa’s lead market analyst expressed concerns during an interview that despite additional taxes, government revenue might decline. The analyst pointed out that unstable economic policies can increase business costs, potentially leading struggling companies to either exit the market or downsize their operations. “Increasing levies will end up hurting the tax base. Foreigners will exit and invest in other countries,” he explained.
President William Ruto has plans to raise additional revenue through other proposed levies following his signing of the Finance Bill 2023 into law. The Draft Medium-term Debt Strategy for 2024/25 to 2026/27 financial years suggests various measures, including a Motor Vehicle Circulation tax payable annually by all motor vehicle owners upon insurance cover acquisition. Other proposals include a final withholding tax on agricultural produce not exceeding 5% of the value of produce delivered via cooperatives or organized groups, VAT introduction on services in educational institutions unrelated to education, and re-introduction of a minimum tax.
Amid rising food and energy prices, increasing taxes, and interest rates hike by the Central Bank, there are concerns that a weakening shilling may push individuals and corporations to seek more stable value storage methods.
The IMF’s recommendations come as part of its broader influence on Kenyan economic decisions and reflect its commitment to ensuring the sustainability of new policies in the region.
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