State at loss as Kenyans spend less on highly taxed items

KRA fears it might miss this year's collection target by Sh300 billion as consumers cut on fuel, telephone calls, meals among others.

In Summary
  • Consumers have resorted to solar and candles to escape high fuel cost. 
  • CPI, measure of the price of goods and services purchased or otherwise acquired by households reached a record high of 137.55 points in December 2023.
Jacinta Akoth, 25, says the small kerosene tin lamp is a painful reminder of a dark past that she wants to forget. They are now connected to a 150W solar system with seven lamps.
Jacinta Akoth, 25, says the small kerosene tin lamp is a painful reminder of a dark past that she wants to forget. They are now connected to a 150W solar system with seven lamps.

Clouds are fast gathering around Kangemi Market in Nairobi.

Rains will be pounding in a few, dispersing buyers and sellers who are clinging to the moment to make a difference as the evening fades. 

It is time for Jane Adisa, 64 who sells local vegetables at the market to go check on her three grandchildren. "They are my late daughter's children. I buried her in 2015.''

"It has been quite tough but I thank God. I get a profit of  Sh1,300 profit on an average day. I used to comfortably spend Sh1,000 and sink the rest into the business but things have changed for the worse,'' she says, lighting another candle to light up her congested room, the size of a basics generator room.

She laments that the cost of living has gone up, outweighing the regular Sh1,000 daily income. This has forced her to cut on basics and seek cheaper alternatives to cater to the family of four. 

"I no longer buy kerosene in this house. Electricity is now a luxury to me. My grandchildren use these candles for studying and executing other household chores at night. Somethings had to give for us to survive.''

Adisa's story echoes those of many Kenyans who talked to the Star on measures they take to survive in a tough economic environment characterized by the high cost of goods and services due to high taxes and a shakeup in the global financial market. 

Last year, the government introduced several tax measures in the Finance Act, 2023 that added pressure on taxpayers, pushing up the cost of living. 

It, for instance, doubled Value Added Tax to 16 percent on fuel, effectively pushing up operational costs, forcing producers to pass the pressure to consumers. 

Others are the introduction of a housing levy and raised deductions on national health coverage and social protection. 

The consumer price index, a measure of the price of goods and services purchased or otherwise acquired by households reached a record high of 137.55 points in December 2023, according to the Kenya National Bureau of Statistics (KNBS). 

The country's CPI has averaged 45.34 points since 1984.

Japthet Walukhe, a smallholder farmer at the Moi Farm Scheme in Trans-Nzoia County has shifted to solar to escape the high cost of kerosene that currently retails at a record Sh202.61 per litre. 

"Although not fully reliable, solar has helped me avoid the high cost of kerosene that was taking almost a third of my daily earnings. Although solar has a high initial cost, it is rewarding,'' Walukhe told the Star. 

He has also cut on calling, preferring short messages, and two meals a day instead of three. He briefly beams with excitement before putting on a sad face..." I now prefer sugarless tea and air-free cigarettes for double benefits of health and cost-cutting.''

State data is capturing decreases in consumption of basic goods and services.

An analysis of official data by both the Kenya National Bureau of Statistics and the Energy and Petroleum Regulatory Authority (EPRA) shows kerosene consumption dropped by almost half, three months after VAT on fuel doubled in July last year. 

Only 15.3 million litres of kerosene were sold in the review period compared to 28.8 million litres same period in 2022, the lowest in past five years.  

Usage of diesel dipped by 4.3 per cent during the study period to 658 million litres from 688 million litres similar period the previous year. 

There is also a noted drop in mobile phone call revenue and a surge in text revenue, an indication that more people are cutting communication costs in a tough economy.

Others have relocated to cheaper houses or closer to workstations to cut high transport costs. 

A spot check by the Star in Kilimani, Langata, Ruaka and Adams Arcade shows that many tenants have moved to own homes or cheaper rentals on the outskirts of the city in the past two years. 

The latest sector report by Hass Consult shows Thika recorded the highest rental increase in the last quarter by 2.2 per cent followed by Syokimau at 1.9 per cent and Kitengela (1.3 per cent).  

Mlolongo and Ruaka also recorded a rise of 1.2 per cent while Ongata Rongai recorded a 0.5 per cent rise. Rent in Kiambu rose by 0.1 per cent. 

The shift has seen the rent for a one-bedroom unit in Kitengele for instance rise to an average of Sh12,500 from Sh10,500 in a year. 

Rent in posh Nairobi districts like Muthaiga, Loresho, Westlands and Kilimani, Hass Consult says has risen on high utility costs.  

''Suburbs such as Riverside, Langata, and Westlands, which are near the city's main economic hubs performed best in rental price growth of up to 1.5 per cent,'' Sakina Hassanali, Head of Development, Consulting and Research at Hass Consult says. 

The state is on the receiving end as consumers become creative to escape high taxes. 

The latest report by the Parliamentary Budget Office (BPO) shows Kenya Revenue Authority (KRA) missed the tax revenue collection target for quarter one of the current financial year by Sh72.5 billion.

The Quarterly Economic and Fiscal Update (July - September 2023) Report noted that overall tax revenue receipts totalled Sh545.3 billion translating to 88.3  per cent performance.

The first quarter target is based on the annual tax revenue target of Sh2.571 trillion for the Financial Year 2023/24.

The report said revenue collection grew by 7.9 per cent from the previous year, a drop compared to an average of 13 per cent growth in previous years.

"If the performance rate follows the same trend for the rest of the fiscal year, then the annual target is likely to be missed by approximately Sh300 billion,” the report says.

Although it attributes the drop to the delay in implementing the revenue-raising measures contained in the Finance Act of 2023, economic experts are of the contrary opinion. 

"You cannot defy the Laffer Curve theory and survive. Tax measures must be of mutual benefit between the public and the state. This is just the tip of the iceberg, winter is coming,'' an economist Shem Mutonji opines.   

In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue.

It assumes that no tax revenue is raised at the extreme tax rates of zero per cent and 100 per cent, meaning that there is a tax rate between zero per cent and 100 per cent that maximizes government tax revenue.

This sentiment is echoed by his colleague, Joe Ngatia who says you cannot overmilk a cow to prosperity for "It will throw a hoaf in desperation.'' 

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