How the Finance Act 2023 hit Kenyans

 

When President William Ruto signed the Finance Act 2023 to law at State House Nairobi. [PCS]

Close to a year after the Finance Act 2023 came into effect, many Kenyans are still struggling to adjust to the realities that the law dealt them.

This is even as the National Treasury proposes even more new tax measures that analysts have warned could have a similar kind of impact on Kenyans, making essentials such as bread and transportation more expensive.

The Finance Act 2023 remains one of the most controversial money laws, with some of the clauses still being contested in court. 

A look at the Economic Survey 2024, which shows how the economy performed last year, somewhat gives a view of the kind of impact that the Finance Act 2023 had on Kenyans.

Different sectors reduced their consumption of petroleum products by reacting to the high cost of fuel, which could have meant a reduction in activities while construction also suffered a decline as Kenyans reacted to the higher cost of building materials.

Adverse impact

Different sector players noted that last year’s Finance Act made life difficult for Kenyans and argued that the Treasury should have been considerate this year.

“With mwananchi still recovering from the adverse impact of the fiscal changes imposed in 2023, we strongly believe that the focus as a country must be on supporting the manufacturing industry to reduce the cost of locally produced products and services, to drive job and wealth creation, boost productivity, as a result, it will lower the cost of living for mwananchi and create prosperity for Kenya,” said Kenya Association of Manufacturers chief executive Anthony Mwangi.

Alex Kanyi, a partner at financial consultancy firm Cliffe Dekker and Hofmeyr, said the Treasury should have measured the impact of the previous measures before introducing new ones.

He added that the government should make data-driven proposals, ensuring changes are effective before implementing further reforms.

“We are getting into another difficult cycle. The tax measures that were introduced last year already stretched many Kenyans. We are however seeing more taxes being introduced through the finance bill 2024,” he said.

“For Kenyans, it means you must tighten your belts, since you will be left with less disposable income. The government should have gone through the old taxes introduced last year instead of coming up with entirely new proposals and see what did not work out instead of introducing new ones.”  

Export Investment Promotion Levy 

It suffices to say that in 2023, EIPL was imposed on industrial raw materials such as kraft paper, steel billets, and cement clinkers to support local manufacturing. 

“While KAM is in full support of local manufacturing, imposing EIPL on raw materials without data verification does more harm than good,” said KAM in a recent statement after a review of the Finance Bill 2024.

“KAM has analysed, in detail, the impact of EIPL on the paper, steel and cement sectors and has noted unparalleled negative unintended consequences in those sectors that are crucial to the economy.

“The cost of construction has since gone up by at least 40 per cent due to this unwarranted policy action.”

Among the sectors that were affected by the levy include construction which grew at a slower rate of three percent in 2023 compared to a growth of 4.1 per cent in 2022.

The decelerated growth was evidenced by declines in key inputs in the construction industry such as cement consumption and volume of imported iron and steel, cement clinkers and non-ferrous metals. Imported clinker, critical in the manufacture of cement, dropped by 77.5 per cent.

Treasury has sought to expand the number of products that pay EIPL in the Finance Bill 2024 to include raw materials for manufacturing of paper packaging materials, critical for packaging food products and household items.