BLEAK OUTLOOK

Lockdown will only hurt Kenyans' pockets more

Kenyans have defied government orders to stay at home, because most live from hand to mouth

In Summary
  • Having 80 per cent of all jobs in the informal economy means most Kenyans aren't within the tax bracket.
  • More than 70 per cent of Kenyans earn less than Sh25,000 and this will affect PAYE revenue greatly due to the 100 per cent waiver.
President Uhuru Kenyatta at State House, Nairobi.
President Uhuru Kenyatta at State House, Nairobi.
Image: PSCU

President Uhuru Kenyatta came up with measures to cushion the economy from the ravages of Covid 19. All major global economies have come up with stimulus packages.

Kenyans have defied government orders to stay at home, because most live from hand to mouth, as they are watu wa vibarua au biashara ndogo. We need to look at our economy in totality.

The US has announced a Sh84 trillion cushion from the pandemic, about Sh100,000 per person. That is more than 28 years of our national balanced budget, as the dollar is not only a reserve currency, but the US is the only country that can actually print money. If Kenya were to do that, it could only give Sh100,000 to its poorest 15 million people, amounting to Sh1.5 trillion, exhausting our current annual national ordinary revenue.

 
 

Kenya is not a social welfare state, forgetting matters affordability. We only have Sh7.38 billion as an emergency caused by the unreturned Sh1,000 notes due to demonetisation. This is the only money that Kenya can ‘print’. The President has however proposed a cash transfer of Sh10 billion for the elderly, orphans and other vulnerable groups.

The Kenya Association of Manufacturers had asked for a 30-15 per cent reduction in corporate tax and zero VAT rating on essentials. The President reduced corporate tax from 30 per cent to 25 per cent and reduced VAT from 16 per cent to 14 per cent in addition to a Sh10 billion facility for verifiable VAT refunds. Hopefully, this will stabilise or reduce prices of goods and food.

 

More than 70 per cent of Kenyans earn less than Sh25,000 and this will affect PAYE revenue greatly due to the 100 per cent waiver. Treasury has lowered its growth projection from 6.1 per cent to 3.6 per cent owing to the looming global recession, though CBK projects four per cent to 4.9 per cent. The Parliamentary Budget Office more realistically projected 5.6 per cent; it needs to give figures Parliament can use to make informed deliberations.

Nevertheless, our total revenue collection for this and next year will drop significantly due to lower economic growth and reduced taxation.

Further, having 80 per cent of all jobs in the informal economy means most Kenyans aren't within the tax bracket. Thus, it's hard to target them directly, without causing further economic shocks. 

KRA and counties need to devise means of bringing them onboard, especially through business development services in conjunction with formal and informal lenders. The reduction of the CBR and bank reserve rates to 7.25 and 4.25 per cent, respectively, will release Sh35 billion into the economy to increase market liquidity and, hopefully, reduce the interest rate to 10 per cent or less.

Treasury and KRA will be hit hard. We must calculate lost revenue and the impact on both the Division of Revenue Bill and the County Allocation of Revenue Act to avoid a tug of war between the Senate and the National Assembly.

 
 

The Sh316 billion proposed allocation to counties may be untenable, and counties will have to rely on their Own Source Revenue to remain afloat.

Beyond the health crisis, we need to pursue a serious conversation about our economy if we are to get off the bottom of the global food chain. The Covid-19 disruption calls for creativity and only those with quick recovery plans will leap forward.

Thus, we cannot afford a total lockdown as it will hurt many Kenyans more, and BBI referendum campaigns can only make matters even worse. We all need to be responsible, for if you want to win the world, melt it, do not hammer it.  

Vice chairman of the Senate Committee on Finance and Budget