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Kenya’s Treasury Reintroduces Controversial Tax Measures Amid Budget Deficit Woes

NAIROBI, Kenya — Kenya’s Treasury has announced plans to reintroduce controversial tax measures that sparked nationwide protests earlier this year. In a recent interview, Finance Minister John Mbadi detailed the proposed tax amendment bill to reduce the country’s widening budget deficit. However, the plan has already met with renewed public criticism.

The proposed changes come months after similar tax measures incited public outcry and violent protests, claiming over 50 lives since mid-June. Demonstrators stormed Parliament, opposing a finance bill that they argued intensified the cost-of-living crisis. Under pressure, President William Ruto’s administration temporarily halted the bill. However, with rising debt obligations and fiscal targets set by international lenders like the International Monetary Fund (IMF) and World Bank, the government is now revisiting these policies.

Among the most significant proposals is an increase in the highest personal income tax rate from 30% to 35% for individuals earning over KES 500,000 monthly (around KES 6 million annually). This adjustment will likely put pressure on middle-income earners, limiting their disposable income and potentially curbing consumer spending.

Another key provision is the reduction of the turnover tax threshold from KES 1 million to KES 500,000, bringing many small businesses into the tax net. The bill also proposes lowering the threshold for medium enterprises from KES 50 million to KES 15 million, while increasing the turnover tax rate from 1% to 3%. These changes could challenge small and medium enterprises (SMEs) by raising their tax liabilities.

The bill also includes an eco-levy on environmentally harmful goods, a measure that could lead to higher prices for essential items like sanitary towels and diapers, raising concerns about increased burdens on low- and middle-income households.

The Treasury argues that these tax measures are necessary to meet fiscal targets and maintain economic stability. With Kenya’s national debt mounting, the government faces pressure from lenders such as the IMF and World Bank to increase tax revenue. Finance Minister Mbadi and President Ruto have warned that without these adjustments, the country’s financial stability could be compromised, leading to potential economic challenges.

If enacted, the tax measures could have broad economic consequences. Increased taxes on personal income and business revenues may curb consumer spending, which is essential for economic growth. As household disposable income diminishes, families may cut back on non-essential purchases, potentially slowing down economic activity.

Businesses, particularly SMEs, may also face increased operational costs due to the higher tax burden. This financial strain may hinder their ability to expand or invest in new ventures, potentially stifling job creation and innovation within Kenya’s private sector. Such effects could complicate efforts to achieve long-term economic growth and development.

The announcement of the proposed tax amendments has sparked immediate backlash. Opposition lawmaker Robert Mbui criticized the Treasury’s plan, describing it as a “mistake” and accusing Minister Mbadi of reneging on earlier promises that no new taxes would be introduced. Meanwhile, youth-led protest groups have pledged to resume demonstrations in response to the news.

In defense of the tax measures, President Ruto has argued that they are necessary to avoid more severe economic consequences. The IMF has also backed the reforms, suggesting that increased tax revenue is essential for stabilizing Kenya’s fiscal situation amid rising debt.

As Kenya confronts its fiscal challenges, the reintroduction of these tax measures presents a complex balancing act. While the taxes may offer short-term relief to government finances, their potential impact on households and businesses raises concerns about long-term economic stability. How the government addresses public discontent while pursuing fiscal objectives will play a crucial role in determining both its political future and the financial well-being of Kenya’s citizens.

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