Parliament on Tuesday approved the controversial Finance Bill 2024, backing recommendations to withdraw some taxes, including taxes on bread, airtime and cars, which were part of a package of reforms Kenya agreed to implement in a deal with the International Monetary Fund.
The vote on the amended revenue increase bill was marred by bloody street protests against the tax hike in Nairobi and other Kenyan cities and towns that saw demonstrators storm Parliament and set part of it on fire, forcing the evacuation of lawmakers.
Police shot dead at least 10 protesters, some around parliament buildings.
Kenya has also promised the IMF to link its Kenya Revenue Authority (KRA) system to mobile money platforms to weed out tax evaders and boost revenue by billions of shillings.
But MPs weakened the plan, which was due to take effect in July, after they rejected a clause giving the KRA unrestricted access to personal data deemed crucial to spying on suspected tax evaders.
President William Ruto, under pressure from waves of youth protests, mostly Gen Z protesters, has been caught between the competing demands of lenders such as the International Monetary Fund, which is urging the government to cut the deficit to get more financing. Populations under severe stress.
“The measures include adopting a motor vehicle trading tax, removing several exemptions on interest income, and reducing tax expenditures on value-added tax and import duties; increases in customs duty rates on money transfers and telecommunications data services,” the January IMF report said. “.
The International Monetary Fund had acknowledged in the report that some of the measures included in the program, and some of them included in the draft finance law, could lead to unrest.
“Unrest may re-emerge in connection with protests against rising costs of living, the need to increase taxes, and the electoral process supported by the political opposition,” the IMF said.
The IMF’s advice to the government, in the event of unrest, was to “remain committed to reforms under the programme.”
Parliament will now send the draft finance law to the president for his signature. He can return it to Parliament if he has any objections.
Kenyans, including industry groups, have widely criticized the legislation, saying it adds punitive new taxes and raises on a wide range of goods and services that will drive up the cost of living.
The protests, which began in Nairobi last week, have spread to other major towns and cities such as Kisumu, Nakuru, Eldoret, Nyeri and Mombasa, and were seen in more than half of the 47 counties on Tuesday.
President Ruto gave a televised address on the protests last night, describing Tuesday’s march on parliament as an act of treason and vowing to deploy security to crush the protests.
Demonstrations in Kenya are usually mobilized by political leaders who have been willing to reach negotiated settlements and power-sharing arrangements, but the young Kenyans involved in the current protests have no formal leader and have become bolder in their demands.
The protests were directed by young people who used social media platforms like TikTok and Instagram to start a leaderless movement that galvanized the nation.
The government has already made some concessions, scrapping proposed new taxes on bread, cooking oil, car ownership and financial transactions. But that was not enough to calm the protesters.
Some of the abolished taxes are part of a program Kenya has with the International Monetary Fund, which aims to mitigate the country’s debt risks by raising taxes and cutting unnecessary spending in a process known as fiscal consolidation.
Kenya has committed to imposing the new taxes as part of the terms of a 38-month programme, which if they fail to do so may force both parties to go back to the drawing board. The country has also promised the International Monetary Fund to connect the KRA’s digital system to mobile financial platforms, a plan that has been backed by a provision in the Finance Bill that allows for the mining of personal data without a court order.
But MPs rejected the data mining proposal, arguing that it violates the data protection law.
The adoption of electronic invoices on the eTIMS platform by all suppliers has also been eased, another provision in the IMF-Kenya deal aimed at boosting tax compliance, with MPs exempting small businesses and farmers.
Kenya and the IMF also agreed to simplify tax expenditures – waived taxes – with the Treasury promising not to allow alcohol manufacturers to claim a refund of excise duties imposed on inputs such as ethanol and glass in the Finance Bill.
The Treasury Department has informed the International Monetary Fund that these measures will be implemented in 2024 to help raise taxes and reduce the budget deficit. President Ruto has pledged to increase tax collection to 20 percent as a percentage of GDP by the time his first term ends in 2027.
The car tax, increasing indirect duties on mobile money transfer and airtime and removing several exemptions on interest income, and reducing tax expenditures on VAT and import duties were supposed to be included in the Finance Law of 2023 but were postponed by a decision of the Ministry of Finance. Cabinet. – Submit it in the proposed procedure to increase revenues for the fiscal year that begins next month.
Kenya and the IMF also agreed to simplify tax expenditures – waived taxes – with the Treasury promising not to allow alcohol manufacturers to claim a refund of excise duties imposed on inputs such as ethanol and glass in the Finance Bill.
In the Finance Act 2023, the government increased the VAT on petroleum products to a record level of 16%, another IMF proposal initiated under the previous Uhuru Kenyatta administration.
Dr. Ruto, whose first task after assuming power was to abolish fuel subsidies in line with International Monetary Fund conditions, has refused to postpone the fiscal bill despite its unpopularity among Kenyans.
Although political risks were noted in the January report, the IMF also expressed confidence in supporting the current administration.
“However, commitment at the highest political level to the necessary policy actions and good prospects for additional external financing from development partners are expected to mitigate these risks,” the report said.
“Despite multiple significant shocks over the past two years, the authorities have adopted difficult but justified policy measures aimed at addressing Kenya’s debt-related vulnerabilities, a key objective under the programme.”
The IMF and World Bank have been accused of pushing punitive austerity measures that are likely to stall growth and raise the cost of living in a new attack against the neoliberal values beloved of the Bretton Woods institutions.