Treasury CS Prof Njuguna Ndung’u is on record saying raising taxes during a recession is not the right cause of action.
It is quite strange that this advise was not taken, and a string of new taxes were introduced during the period when PMI, that is the Stanbic PMI, which reflects the purchasing manager activity for the private sector, was negative for six consecutive months.
And this comes on the back of a similar trend during last year when the election-related slowdown occurred. This slowdown of private sector activity was exacerbated largely by a new range of taxes that were introduced like the housing levy, higher NSSF, and increase in VAT on fuel from eight to 16 per cent.
Of course, the idea was that all efforts needed to be taken to avert Kenya from sliding closer to inability to repay its debts. But we must also acknowledge that the higher the taxes, and the higher the speed at which these taxes are introduced, the lower the public participation or rather acknowledgement of feedback from the public, the less likely the vibrancy of the private sector to sustain them.
Therefore, some of these taxes have the potential effect of slowing down the private sector activity and in turn this will decrease rather than increase the tax revenue. Or rather, it will slow down the growth rate of the tax revenue when a sustained optimistic recovery would actually yield a more organic growth rate from existing taxes.
So, introducing additional taxes particularly the most hated, the minimum tax, would prevent investors from making new decisions on investment and this would mean the expansion plans or initial plans to set up could be derailed because the predictability of the tax regime and the stability of the frequency of mooting new tax policy is not there.
Therefore, we need to establish one thing as the people of Kenya, and also in the form of communication by the government of Kenya, that all taxes during the reign of President William Ruto should remain stable and not continue the trend of the previous government.
Markets expert spoke to the Star
