Treasury Secretary Ukur Yatani arrives at Parliament buildings on June 11, 2020 to table Sh3.2 trillion budget.
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Tax pain for Wanjiku in Sh3.6 trillion Ukur Yatani budget
What you need to know:
- Supply of ordinary bread now becomes vatable – 16 per cent.
- Excise duty paid per motorbike from the current Sh11,608.23 per unit to a flat rate of 15 per cent. This will see any motorbike priced above Sh79,000 cost more
- Imported jewellery to attract excise duty at the rate of 10 per cent
- Products containing nicotine or nicotine substitutes will attract a Sh5,000 tax per kg.
Perched on his motorcycle taxi, donning a battered helmet, a scruffy leather jacket and worn out shoes; George Omwega braves the hot Nairobi sun as he scans the busy Tom Mboya Street, in the hope of spotting his next potential client in the sea of city residents.
It is minutes to midday and even though the streets are teeming with people, it appears lady luck is yet to smile on him. He has so far ferried only one client.
“The number of passengers we carry in a day has reduced by about half. For several months now, I have been living from hand to mouth, only managing to get something for my family to eat,” Mr Omwega offers.
Yet to operate a boda boda within the Central Business District (CBD), he has to squeeze the little he gets to pay protection fees to some rogue police and city county officers, who can be a costly nuisance, besides other legal requirements.
On a good day, of late, he manages to carry at most 10 passengers, just enough to cater for his family’s needs. Nothing much.
“Life has been hard since people don’t have money in their pockets and so automatically they have to cut on any cost that they can avoid. On the other hand, prices for basic commodities have gone up,” says Mr Omwega, who has been in the boda boda business for five years.
New tax measures
What he does not know however, is that his business, which is now an employer of hundreds of thousands of Kenyan youths, is the target of new tax measures to be announced on Thursday, as the Treasury moves to fund an expansionary Sh3.6 trillion budget.
His taxes will fund the Executive to the tune of Sh1.89 trillion, Parliament (Sh46.6 billion) and the Judiciary (Sh17.9 billion).
The Consolidated Fund budget, which largely takes care of debt repayments and salaries for constitutional commissions, has shot up by 23 percent to Sh1.3 trillion. The bulk of the Sh253 billion increase will go towards servicing Kenya’s mountain of debt. Counties will get Sh370 billion.
In Mr Omwega’s current situation, the addition of any new taxes feels like a punishment. Besides fuel costs and heavy penalties he has to pay if found on the wrong side of the law, he is dealing with the threat of the Covid-19 pandemic, which is just one client away.
Unless parliament comes to his rescue, the government plans to change the taxation model for motorcycles from Sh11,608 to a flat rate of 15 per cent, which will make it costlier to replace his current bike with any motorbike priced above Sh79,000. This will be a direct hit on the booming motorcycle taxi sector, which is a key mode of transport in both urban and rural areas.
“That means it would increase the time it takes for me to recover the amount I used to purchase a motorcycle, thus reducing my take home. It also means fewer people will afford to own one yet this has been the option for many jobless youths in Kenya. Things will get hard,” he says when informed about the proposed new taxes.
This is besides an increase in prices for other basic commodities used generally in the economy, or introduction of new ones such as tax on bread.
Ms Aliya Patrick is no longer waiting for clients inside her jewellery and beauty products shop along Moi Avenue. Instead, she now prefers getting some sunlight outside as she keeps an eye on the business.
She says January – the month always associated with lack of money among people – was the last time her business showed some signs of life. Ever since, she has been waking up to a harsh business reality.
Facing the main street (Moi Avenue), her stall is prime and costs Sh80,000 in monthly rent. But the business is so bad that every month she now has to dig into her savings, to top up rent payment.
“I reduced the volume of products I buy by half. Ideally, this business is supposed to generate Sh30,000 weekly but bringing Sh20,000 only has been a problem. This is also partly because prices for these products have also gone up recently,” she says.
Ms Aliya deals in items such as watches, chains, necklaces, sunglasses and bangles, among other beauty products. The increase in prices, she says, has eaten into profits marginally since increasing prices to a certain level would deter customers.
If things get worse than the current situation, she and other businesses operating in the same area may be forced to close down. Yet again, the jewellery industry is among sectors the Treasury plans to cash in from, by proposing to tax imported jewellery at the rate of 10 per cent, from the current Sh5,000 per kilogram.
“No trader will accept to continue getting back to the pockets to top up rent payment. The situation is already hard, any more hurdle will cause many to close down,” Ms Aliya said, noting that some businesses had already been drained by the Covid-19 economic shutdowns.
The proposals by the Treasury to change tax models for bread, motorcycles, jewellery items, products with nicotine substitutes and betting industry, coupled with fuel prices which have been on a rising trend in the recent months, are bound to leave Kenyans with empty pockets, while businesses suffer even more.
“They will sharply raise the cost of living for the low income population. The government should reconsider its proposal and act to protect its citizens,” says Mr Daniel Opondo, a manager at Nascos lounge.
“With higher cost of supplies, restaurants are confronted with the challenge of increasing menu prices and or reducing customer servings to accommodate the high cost of production as it is. For restaurants to operate, they have to maintain a practical, applicable and viable food cost. Food costing is a key element that any serious operator can't ignore, lest you dip down,” Mr Opondo said.
He noted that the Covid-19 period had already forced the restaurant to send some workers home as several others across the country closed. Those still in operation are struggling.
At the City Market, as one trader who deals in clothes and beads opened her shop around 11am yesterday, she was not doing so because she was assured of good business for the day, but because the management has instructed traders not to close, despite the poor business.
“The whole of last month I did not sell anything in this shop and up to where we are this month, I haven’t sold anything,” said the trader, who asked to speak anonymously because of concerns about the market’s management.
“Increasing taxes has a ripple effect because products such as fuel affect every sector of the economy and much as businesspeople may look at it on the thinking that they will pass the cost to consumers, it is of no essence if the clients themselves have no money at all,” she said.
Responses by a cross section of Kenyans indicate that despite the Treasury’s ambitious strategies to raise more revenue to fund the Sh3.6 trillion budget for the Financial Year 2021/22, the situation on the ground is dire, with the majority literally surviving only for the day.
They all agree that it is the low-level mwananchi who is feeling the heat first-hand, as pockets dry up and purchasing power drops.
The transport, hospitality, manufacturing and trade sectors have taken the heaviest hits from the pandemic, amid increasing prices for basic products and fuel, which have worsened the situation.
Last month, the Bakers Association of Kenya (BAKE) appealed to the government not to introduce a 16 per cent VAT on bread, arguing that Covid-19 and high fuel prices had already made things tough for the sector.
“This new tax will further hurt the sector,” BAKE said in a letter to the Treasury, adding that the increase would raise the price of bread by about Sh8 and thus push away customers. Bread is currently among the zero-rated items, something the Treasury wants to change through the Finance Bill 2021.
