Spoiler alert: Cost of living crisis rude shock for Kenyans in New Year

Kenyan families are facing a tough New Year as further squeezes on living standards take place in 2023.

While the year ahead may provide some relief to economic policymakers, with signs that inflation may ease, family finances face a repeat of the 2022 squeeze as the cost-of-living crisis worsens.

A slew of new levies and taxes are set to hit Kenyan households today, adding to the already-heavy financial burdens imposed by the cost of food, energy, and other essential items and services.

This has fueled concerns about escalating household bills in the New Year, which have already begun to mount.

Electricity

The cost of power is set to rise as of today after the new government eliminated the low-cost Kenya Power electricity subsidy, which cost taxpayers Sh26 billion over a one-year period beginning in January.

The government of President William Ruto has stated that the 15 per cent cut will not be extended past December 31, setting the stage for costly power and further pressure on already high inflation.

The International Monetary Fund (IMF) and Kenya Power had opposed further extension of the cheap electricity subsidy placed by former President Uhuru Kenyatta's government.

The former administration placed the cushion programme amid social tension and pressure following a cost-of-living crisis that continues unabated to date.

School fees

Parents will be dealt a major blow when schools resume later this month after the government announced the end of fees subsidy in January.

An earlier circular by the government said the fees holiday that saw some parents get a reprieve of up to Sh8,500 will end as government reverts to fees charged before Covid-19.

The move, which will be a big setback for parents who are already feeling the pinch of harsh economic times, will see those with children in national and extra-county schools pay Sh53,554 up from the present Sh45,000.

Parents with children in county and sub-county boarding secondary schools will now pay Sh40,535 per year, up from Sh35,000.

According to the new calendar, term one starts on January 23 and ends on April 21, while the second term runs from May 8 to August 11, followed by a two-week holiday.

Transfer of property to cost more

It will now cost you more to transfer property after the Capital Gains tax went up to 15 per cent.

Capital Gains tax is charged on gain accrued from the transfer of property such as buildings, land or shares.

The Finance Act of 2022 (Finance Act) amended the Income Tax Act (ITA), by increasing the rate of capital gains tax (CGT) from five per cent to 15 per cent.

The Finance Act provides that the increase will take effect from January 1, 2023. The CGT is due on or before the transfer of property but not later than the 20th day after the transfer.

A transfer of property is said to have occurred if the property is sold, exchanged, conveyed, or otherwise disposed of in any manner (including by way of gift), whether or not for consideration.

Further, a transfer occurs on destruction, abandonment, surrender, cancellation, or forfeiture of property.

Examples of properties that incur CGT when transferred are land, buildings, securities, and shares.

Higher bank transfer charges

Kenyans will, from today, spend more when transferring money from their bank accounts to mobile money wallets.

This is after banks started effecting new levies following the reinstatement of the service charges by the Central Bank of Kenya (CBK) in early December.

"Dear customer, following the press release by CBK, we wish to notify you that effective January 1, 2023, the bank will reinstate transaction charges between the account and mobile money wallets. For more information visit our website," said one of several banks in a notice to customers.

The return of the fees frozen over two years ago comes as fresh pain for consumers, but a major win for lenders who have witnessed a fall in fees and commissions.

Banks have been clamouring for the end of the freeze to rev up non-interest income.

While consumers have been enjoying the relief introduced in March 2020 to contain the spread of Covid-19 through cashless transactions, banks have been bleeding millions monthly due to the free transfers between them and wallets as Kenyans shunned bank branches and ATMs.

Costly fuel subsidies

Kenyans are staring at tougher economic times from today after the National Treasury removed remaining kerosene and diesel subsidies in a bid to trim the fiscal deficit.

Kenyans are already reeling under surging food and energy prices.

President Ruto earlier scrapped the subsidies for petrol and maize flour on September 13 and reduced those for diesel and kerosene, saying they were unsustainable.

The removal of the remaining subsidies will see the cost of diesel, which is used to power commercial vehicles and kerosene, mostly used by low-income homes for cooking and lighting, go up significantly.

"The government will eliminate the remaining unsustainable and consumption-driven fuel subsidy by end of December 2022, but will continue to offer support to agricultural production through the fertiliser subsidy programme," said the Treasury in the 2022 Budget Review and Outlook Paper.

An end to the fuel subsidy means higher diesel prices, which will raise the cost of transport, mechanised farming, and industrial production.

Fuel costs have a direct bearing on inflation, being one of the items in the basket of goods and services whose pricing is tracked to measure the cost of living.

Knock-on effect

The sustained high fuel prices have had a knock-on effect on the cost of living and doing business in the country, with the prices of goods, household energy bills, and transport remaining stubbornly high at 9.5 per cent in November.

Diesel is retailing at Sh162 a litre in Nairobi until January 14, 2023, while Kerosene at Sh145.94, according to the monthly prices set by the Energy and Petroleum Regulatory Authority (Epra).

Diesel runs tractors, lorries, agriculture irrigation pumps and captive power generators used in industries.

The economy also uses diesel for electricity generation, meaning that higher prices of fuel automatically result in higher fuel cost charges on power bills.

Producers of manufactured goods are also expected to factor in the higher cost of power in their factories and diesel for the transportation of goods, which are expected to be passed on to the consumer. Food costs are already elevated due to poor weather conditions and supply constraints, with higher transport charges expected to be loaded onto the final price.

The sustained high inflation has forced many households, especially in the low-income segment, to reduce their shopping basket.

Imports to cost more as shilling hits record low (123.3735)

The shilling on Friday hit an all-time low against the dollar (123.3735), signalling inflation and higher cost of imported goods.

The weakening of the shilling has triggered fears of a fresh round of inflationary pressure, which is set to become a political headache for the new government.

The depreciating shilling now threatens to pile fresh pressure on fuel prices, which have stoked public anger.

A weak shilling is harmful to Kenya given it is an import-driven economy.

Kenya imports various goods including cars, petroleum, machinery, medicine and pharmaceuticals products, vegetable oil, wheat, clothing and shoes.

More and new taxes by KRA

President Ruto plans to embark on an aggressive domestic revenue mobilisation drive to fund his next Sh3.64 trillion budget.

The National Treasury said earlier this year that it will introduce several tax policies over the next year in what will be Kenya Kwanza's first national budget.

This is aimed at raising the needed resources to offset the budget deficit created by a huge public debt.