Kenya Economic Future on The Balance: Addressing the Contentious 2024 Finance Bill for Kenya's Economic Growth and Job Creation

The 2024 Finance Bill has sparked significant debate and public outcry in Kenya, highlighting the nation's ongoing struggle to balance fiscal responsibility with economic growth and social equity. As the government seeks to implement new revenue measures to support its ambitious budget, the voices of concerned citizens, particularly the youth, have grown louder. This article delves into the historical context leading to the current situation, the contentious issues within the bill, the proposals by the parliamentary committee, the demands of the citizens, and strategic recommendations for a balanced and progressive economic future.

Historical Context: The Road to the 2024 Finance Bill

Kenya's economic landscape has been shaped by various fiscal policies aimed at addressing budget deficits, fostering growth, and improving public services. Over the years, the government has introduced multiple tax measures to increase revenue, often facing resistance from the public. The 2024 Finance Bill is a continuation of this trend, proposing a raft of new taxes to finance the 2024-25 fiscal year budget. However, the economic strain caused by the COVID-19 pandemic, coupled with rising living costs, has intensified public scrutiny and opposition to these new measures.

Contentious Issues in the Finance Bill

Several proposals within the 2024 Finance Bill have been identified as contentious and have drawn significant public criticism:

1. Motor Vehicle Tax: A proposed 2.5% tax on the value of motor vehicles, payable at the time of insurance cover issuance, has been deemed excessive. Critics argue that this will increase the cost of vehicle ownership and insurance.
2. Withholding Tax on Public Supplies: The introduction of a 3% withholding tax on goods supplied to public entities, with a 5% rate for non-residents, is expected to increase costs for suppliers and, ultimately, for public procurement.
3. Economic Presence Tax: A new tax on digital services provided by non-residents, set at 30% of deemed taxable profit, will significantly impact foreign digital businesses.
4. VAT on Financial Services: Removing VAT exemptions on several financial services, including issuing credit and debit cards, money transfer services, and foreign exchange transactions, is likely to raise the cost of these services.
5. Infrastructure Bond Tax: Introducing a 5% withholding tax on income from infrastructure bonds, which were previously tax-exempt, could deter investment in these bonds.
6. Excise Duty on Financial and Telecom Services: Maintaining the excise duty at 15% for money transfer services and 20% for other fees charged by financial institutions could increase the overall cost of financial services.

Parliamentary Committee Proposals

In response to the public backlash, the parliamentary committee has proposed several amendments to the Finance Bill:

1. Reduction of Tax Burdens: Proposals to lower or phase in the motor vehicle tax and other controversial taxes gradually to reduce the immediate financial impact on citizens.
2. Tax Incentives: Introducing tax incentives for new investments in key sectors such as manufacturing, technology, and renewable energy to attract foreign direct investment (FDI) and boost local entrepreneurship.
3. Public Participation: Ensuring extensive public consultations and incorporating feedback into the final bill to reflect the needs and concerns of various stakeholders.
4. Economic Relief Measures: Exempting certain deductions, such as the housing levy and Social Health Insurance Fund contributions, from the Pay As You Earn (PAYE) tax to increase disposable income for employees.
5. Sector-Specific Funding: Allocating specific funds for critical sectors like education and health to ensure continued investment in human capital development.

Citizen and Youth Demands

The citizens and particularly the youth have been vocal about their demands, seeking a more balanced approach to fiscal policy that promotes economic growth without imposing undue burdens. Their key demands include:

1. Reduction in Living Costs: Immediate measures to reduce the cost of essential goods and services, particularly those affected by the proposed taxes in the Finance Bill.
2. Job Creation Programs: Implementing targeted job creation programs, especially for the youth, through public-private partnerships and investment in emerging sectors.
3. Support for SMEs: Providing more substantial support for small and medium-sized enterprises (SMEs) through tax reliefs, simplified compliance processes, and improved access to finance.
4. Transparency and Accountability: Greater transparency and accountability in how tax revenues are utilized, ensuring that funds are directed towards impactful and sustainable development projects.

Strategic Recommendations for Economic Growth and Job Creation

To address the issues raised and foster a conducive environment for investment and economic growth, the following strategic recommendations are proposed:?

Taxation Reforms?

Reduce Tax Burden: Lower some of the proposed taxes or phase them in gradually to reduce the immediate impact on citizens and businesses.?

Incentivize Investments: Offer tax incentives or holidays for new investments in key sectors such as manufacturing, technology, and renewable energy.?

Public-Private Partnerships (PPPs)

Infrastructure Development: Encourage PPPs to develop critical infrastructure projects, leveraging private sector efficiency and investment capacity.?

Affordable Housing: Collaborate with private developers to meet housing targets by providing tax breaks and streamlined approval processes.?

Support for SMEs

Tax Relief and Simplification: Increase the VAT registration threshold further and simplify the tax filing process to reduce compliance costs.?

Access to Finance: Establish funds or guarantee schemes to improve SMEs' access to credit, partnering with banks to provide low-interest loans.?

Job Creation Programs

Youth Employment Initiatives: Implement targeted job creation programs, such as apprenticeship schemes, vocational training, and entrepreneurship support.?Fund the private sector to absorb the youth in jobs using rebates and tax reliefs.

Technology and Innovation Hubs: Invest in technology and innovation hubs to create jobs in emerging sectors.?Invest heavily in innovation centers all over the country. Ensure the centers have mentors, free internet services and new equipment. Link these centers to a well organized sclaling up projects led by the private sector.

Regulatory and Legal Reforms

Ease of Doing Business: Improve the regulatory environment to make it easier to start and run a business by reducing bureaucratic hurdles and speeding up company registration processes.?It should be possible to register a business and gets all permits in 24 hours. It has been done elsewhere. Let us have single business licenses and unified approvals from a single online site for all agencies.

Data Protection and Privacy: Ensure robust privacy protections in any expansions of the Kenya Revenue Authority's powers to build investor confidence.?KRA and other agencies should not have access to private data unless through a court injunction.

Sector-Specific Strategies?

Agriculture: Invest in modern agricultural techniques and infrastructure to increase productivity and value addition.?

Tourism: Enhance tourism infrastructure and marketing efforts to attract more visitors, simplifying visa processes and improving safety and security.?

Sustainable Development

Green Economy: Promote investments in renewable energy and sustainable practices by providing incentives for green technologies and practices.?

Education and Health: Increase investments in education and health to improve human capital, ensuring well-educated and healthy workers for long-term economic growth.?Implementing these strategies requires a collaborative approach involving the government, private sector, and civil society. Transparent and inclusive policymaking can build trust and ensure that reforms are effective and equitable. By addressing the contentious issues within the Finance Bill and adopting these strategic recommendations, Kenya can pave the way for sustainable economic growth, attract more investments, and create meaningful job opportunities for its youth.