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Mbadi’s acid test on new taxes after Gen-Z protests
Protesters during the anti-finance bill demonstrations along Kenyatta Avenue in Nairobi on June 20, 2024. The deadly protests forced the government to withdraw Finance Bill 2024—which planned tax increases.
Treasury Cabinet Secretary John Mbadi will face a key test in pushing through new tax measures, following the deadly protests in June that ended in the defeat of the Finance Bill, 2024.
The Tax Laws (Amendment) Bill, 2024, currently under public participation will be the first attempt by the Kenya Kwanza administration to move new taxes since the youth-led discourse.
Kenya’s key lending partners, including the World Bank and the International Monetary Fund (IMF), will be keenly watching the social acceptability of the new tax measures. The two Bretton Woods institutions have warned of difficulties in moving fresh tax reforms.
Mr Mbadi is betting on increased engagement with stakeholders to push through with the new tax proposals, even as he argues that the refined Tax Laws (Amendment) Bill is void of punitive measures.
“The truth is that there is some trust deficit (with the public) and that’s why those given the responsibility must win back that trust. One of the strategies is engaging Kenyans and giving them the appreciation that things can change. It’s not a public relations exercise. We are not just seeking opinion for the sake of it,” he said.
The Tax Laws (Amendment) Bill, 2024 seeks to raise at least Sh136 billion in new revenues from reforms, including the extension of tax amnesty, higher excise taxes for alcohol and cigarettes and data services.
The Bill at the same time seeks to make deductions on affordable housing and the social health insurance fund to be taxable deductions in the calculation of income tax bringing some relief to waged workers.
Proposals contained in the Bill include raising the railway development levy to 2.5 percent from 1.5 percent at present, lifting excise duty on betting and gaming to 15 percent from the current 12.5 percent and moving agriculture pest products, fertilisers and their raw materials from VAT zero-rating to exempt status.
Exempt goods bar their manufacturers from claiming input value added tax from the Kenya Revenue Authority even as the supplies remain free of VAT.
The manufacturers of zero-rated goods are, meanwhile, allowed to claim refunds for input VAT from the taxman. Mr Mbadi says the National Treasury has tried to reduce the pain on consumers by voiding most of the previous controversial taxes.
“We have really tried. Kenyans complained about the motor vehicle tax, we removed it, they complained about taxing bread, we removed it... The tax proposals we are making are not going to hurt the common person,” he added.
The World Bank warned that President William Ruto’s government faced difficulties in introducing new taxes, citing a loss of political capital.
The World Bank called for broad changes by government to help drive acceptance for new tax measures.
“The lesson is not really to stop doing reforms but to do reforms that are bold and that are going to lead to the kind of things the protesters are asking for -transparency and good governance and a kind of economic management that is going to be geared at creating opportunities for young people," World Bank Chief Economist for Africa Andrew Dabalen told this publication in a previous interview.
The IMF has, on its part, warned of a difficult path to fiscal consolidation as it backs new tax measuresover spending cuts amid expenditure pressures.
