Ruto's unyielding stand on taxes even as Kenyans wonder where it all goes

A trader (right) sells vegetables at Kisii municipal market on June 12, 2024. [Sammy Omingo, Standard]

“Kuitwa Zakayo si jambo, bora tulipe ushuru; Zakayo ni jina,” said President William Ruto during the Labour Day celebrations last month. This statement is one of many instances where he has directly told Kenyans that he will not relent on taxing them.

On a day meant to celebrate workers, he may have dampened the mood by reminding them why the government needs them to pay more taxes.

“This country cannot be built by miracles, nor can it be built by others. Only we can build Kenya through our strength, our skills, the plans we have, and our money. And that money comes from taxes,” he stated.

Ruto has maintained this position since his first day in office. When sworn in in September 2022, he emphasised the urgent need to expand the country’s tax base, which the Kenya Kwanza administration aims to achieve through job creation and capitalizing SMEs.

The President’s goal is to increase tax revenue to 22 per cent of the Gross Domestic Product (GDP) in the medium term, up from the current 14 per cent. He intends to reduce the country’s reliance on debt and increase dependence on locally collected tax revenues.

“It is going to be challenging; I have much explaining to do. People will complain, but I know they will appreciate it,” he remarked.

However, his ambitions to grow tax revenues have faced heavy criticism.

Kenyans argue that while they are not opposed to paying taxes, the government is not providing value for the taxes they currently pay. They also note that senior state and public officials have not led by example when urging Kenyans to tighten their belts, considering the billions wasted or lost to corruption annually.

They also point out that despite what has been termed punitive tax measures in the Finance Act 2023, the Kenya Revenue Authority (KRA) has failed to meet its tax collection targets.

Ruto’s administration’s latest push in raising taxes is the measures in the Finance Bill 2024.

Through various measures in the Bill, the Treasury hopes to raise an additional Sh323 billion over the 2024/25 financial year. The Bill proposes increasing taxes on essentials, including bread, milk, agricultural inputs, mobile money, and banking services, as well as imposing an annual tax on motor vehicles.

A 16 per cent VAT on bread is expected to increase the cost of a 400-gram loaf by Sh10. Bread, a common breakfast staple for many Kenyans, will also be affected by the motor vehicle circulation tax, expected to increase transportation costs.

Such will likely be the scenario for different products and services, as well as daily commutes to work for Kenyans.

Many Kenyans have angrily reacted to the tax proposals in the Finance Bill 2023, noting that if implemented, the measures would push many over the edge.

“The intention of the Finance Bill 2024 is to skin us. Previously, we were saying bleeding; now, they want to skin us. When a government sets out to skin its people, it’s clear they want a carcass. This Kenya is ours; we need to be alive to pay the taxes,” said Diana Gichengo, National Coordinator of The Institute of Social Accountability (TISA), speaking to the press after making submissions to the Kuria Kimani chaired Committee on Finance and Planning.

There is also the observation that the government has not been investing in public service delivery.

Budget focus

“The non-citizen-focused budget is proposed to be financed by increased taxes on Kenyan taxpayers without commensurate investment in apt service delivery; thus, the burden on Kenyans is set to worsen if the Finance Bill 2024 is passed into law,” said Okoa Uchumi Kenya, a coalition of civil society organizations, in a statement on the Finance Bill.

“The Bill aims to impose heavy tax burdens on the mwananchi by attacking every aspect of their lives, from the food they eat to the spiritual communion; from the cars they use to travel either as commuters or owners to the communication sector that is a major source of social cohesion.”

“A Kenyan taxpayer is staring at a short, miserable life with a raft of violations from the government.”

During a public forum on Monday, where Kenyans gave their views on the bill, Stephen Kihara from Nakuru County noted how Kenya’s young people have been marginalised in the job market.

Without jobs, he observed, the youth have turned to self-employment in the digital space.

Here too, the sector faces new taxes, including a five per cent withholding tax on income earned from digital marketplaces and another five per cent withholding tax on money earned by digital content creators.

“Young people working in the digital space will see their earnings reduced to cater for increased tax. There will be a risk of reduced revenue loss and an increase in fraudsters as people will prefer offline transactions,” he said.

“We find it difficult to find jobs after graduating. We struggle to cope and opt to employ ourselves by getting jobs in the digital space. This government should consider making the digital space a safe environment for us.”

He added that the government’s quest to heavily tax the few options young people have to earn an income, even in instances where it has put little effort into ensuring there are adequate jobs, is akin to a farmer insisting on milking a cow he has not fed.

“Many of us have cows back at home and expect to milk them every evening. There is no way we will continue to milk the cow if we have not fed it,” said Kihara.

Mr Kinuthia added that the motor vehicle circulation tax is discriminatory, favouring wealthy Kenyans driving high-end cars and only paying the maximum rate of Sh100,000. The Finance Bill proposes the motor vehicle tax to be at 2.5 per cent of the vehicle’s value, subject to a minimum of Sh5,000 and a maximum of Sh100,000.

“The cap of Sh100,000 seems to favour luxury vehicle owners, thus increasing inequalities, which are already high in Kenya,” he said.

The church also called on the state to go easy on Kenyans who have been stretched to the limit.

“The NCCK urges the National Assembly to listen to the cry and plea of Kenyans and radically amend the Finance Bill 2024 to avoid imposing a greater taxation burden on the people of Kenya. Let the Finance Bill 2024 be a document that inspires hope and confidence for the future, not one that breeds despair in the hearts of the people,” said Rev Canon Chris Kinyanjui, general secretary of the National Council of Churches of Kenya (NCCK).

In a recent address to visiting Harvard University students, President Ruto noted that his ambitions are not misplaced or out of touch with reality. He observed that Kenya has been underperforming in collecting taxes compared to its regional peers, where the tax-to-GDP ratio is as high as 25 per cent in some countries.

“Kenyans have been socialised to believe that they pay the highest taxes, but empirical data shows that as of last year, our tax as a percentage of GDP was 14 per cent. Our peers on the continent are at between 22 and 25 percent, which means we are way below those of our peers. I am not comparing ourselves to OECD countries… countries like France are at 45 percent, others are higher,” said Ruto.

According to the Organisation for Economic Cooperation and Development (OECD), Africa’s average tax-to-GDP ratio stood at 15.6 per cent in 2021, with Kenya scoring below this average. Countries such as South Africa, Morocco, and Seychelles were at 27 per cent, while Tunisia had the highest tax-to-GDP ratio of 32.5 per cent.

The President has been advocating for the principle of “living within your means” and tightening belts.

“When I came into office, I told everyone to tighten their belts. I am not going to preside over a bankrupt country… a country in debt distress. We have to cut our spending,” the president said recently, adding that he has ordered government officials to reduce their recurrent expenditure by 30 percent.

But is the government really tightening its belt? Critics note that the government is heavy on asking for more from Kenyans but doing little to cut wasteful spending or deal with corruption.

For instance, the government has issued directives on cutting wasteful expenditure, but such spending continues unabated within different government agencies. One area where Ministries, Departments, and Agencies continue to spend carelessly is on travel, both local and foreign.

Despite directives to reduce the size of delegations on foreign trips and the number of days spent abroad to cut expenditure on foreign travel, the money spent increased over the nine months to March 31.

According to the Controller of Budget, government spending on domestic and foreign travel increased by 29.2 per cent over the nine months. Government officials spent Sh18.18 billion on travel, of which Sh12.33 billion was on domestic travel, while Sh5.85 billion was on foreign trips.

“In the first nine months of FY 2023/24, travel expenditure amounted to KSh 18.18 billion, compared to KSh 14.07 billion recorded in a similar period of FY 2022/23,” said the Controller of Budget in a May report on government spending over the first nine months of the 2023/24 financial year.

“In the 2023/24 financial year, the Government issued guidelines regarding foreign travel. These guidelines include directives on travel conditions, delegation sizes, application procedures, and timelines.”

The Controller of Budget also noted the lack of cooperation among different government agencies in accounting for their travel, suggesting more disregard for the rules on travel and that the level of wasteful spending could be higher than what has been declared.

“The Controller of Budget requested MDAs to submit information on foreign travel to enable review and analysis.

In addition to wasteful spending, corruption seems to persist. A recent report by the Ethics and Anti-Corruption Commission (EACC) revealed that 60 per cent of Kenyans are dissatisfied with the integrity, transparency, and accountability in public service delivery in Kenya as of 2023.

The report also indicated that corruption was ranked as the fourth most pressing issue in the country, following high cost of living, unemployment, and poverty. Moreover, 34.4 per cent of those who sought government services reported being solicited for a bribe.

The EACC has previously estimated that Sh608 billion is lost to corruption annually. This significant loss contributes to the opposition against President Ruto’s proposal for increased taxation.

“Despite the government’s comprehensive plans to raise the tax burden, they have not shown the same commitment to combating revenue leakages through corruption, wastage, illicit trade, and money laundering,” stated Okoa Uchumi Kenya, a coalition of civil society organizations, in a statement regarding the Finance Bill.

According to Transparency International’s Corruption Perception Index, Kenya scored 31 out of 100 in 2023, indicating a trend towards being perceived as a highly corrupt country on the index, where zero signifies high corruption and 100 denotes minimal corruption.

“Ongoing taxation without accountability amounts to extortion. It’s an attempt by the government to fulfill its debt obligations, some of which are considered odious debt and thus illegitimate and should not burden the citizens,” asserted Okoa Uchumi.

The Institute of Certified Public Accountants of Kenya (ICPAK), in its submission to the Finance and Planning Committee, noted that addressing revenue leakages is crucial for the government to demonstrate that the taxes currently collected are effectively utilized for Kenyans’ benefit.

Revenue leakages

“Revenue leakages, corruption, and misappropriation of resources lead to the erosion of taxpayer morale and tax apathy. Such revenue losses also hinder the government’s ability to provide essential services that are commensurate with the taxes paid by Kenyans,” ICPAK explained.

“Revenue leakage arises from various factors, including complex tax systems, discretionary power over exemptions, and a reduced willingness to pay taxes due to a culture of corruption.”

The current financial year marks the first budget fully implemented by the Kenya Kwanza administration from its inception.

The Finance Act 2023 has been described as one of the most stringent laws for raising funds and has faced numerous legal challenges. Despite the significant tax measures introduced with the enactment of the Finance Act 2023, the tax authority is anticipated to fall short of its revenue collection target for the current fiscal year. This shortfall raises questions about the efficacy of taxation in boosting tax collections.