Kenya Faces Youth-led Protests Over Proposed Tax Increases

Kenya has been experiencing youth-led protests against the government's plans to raise revenue through additional taxes. The protests intensified on Tuesday, June 25th, 2024, when lawmakers and members of Parliament were expected to vote on proposed amendments to the bill. The members of Parliament passed the Finance Bill and proposed some amendments. Once passed by Parliament, President Ruto would have to sign it into law within 14 days or send it back to Parliament for further amendments.

Protesters, dubbed as Gen-Z, want the government to abandon the planned tax hikes, which they argue will choke the economy and raise the cost of living for Kenyans who are already struggling to make ends meet. President William Ruto's manifesto of the 'Bottom-Up Economic Transformation Agenda (BETA)' is geared towards economic turnaround and inclusive growth through a value chain approach. BETA targets sectors with high impact to drive economic recovery. According to the government, this model aims to lift Kenyans to the bottom of the economic pyramid, notably Micro, Small, and Medium Enterprises (MSMEs). However, this ambitious economic plan is encountering significant challenges and jeopardizing its realization.

Purpose of the Finance Bill

In Kenya, a finance bill laying out the government's fiscal plans is usually presented to Parliament before the start of the financial year that runs from July to June. The Kenyan government aims to raise $2.7 billion in additional taxes during the 2024/25 budget period to reduce the budget deficit and state borrowing. The World Bank and the International Monetary Fund have recommended 55 percent of GDP. Kenya's public debt is considerably higher, at 68 percent of GDP. Due to acute liquidity challenges amid uncertainty over its ability to access capital from financial markets, Kenya has turned to the IMF, which has advised the government to meet revenue targets to access more funding.

Proposed Tax Measures

Proposed tax measures that have triggered protests include new levies on basic commodities like bread, vegetable oil, and sugar, and a new motor vehicle circulation tax—pegged at 2.5 percent of the value of a car and paid annually. An "eco levy" on most manufactured goods, including sanitary towels and diapers, is also proposed. In addition to the new taxes, the bill proposes increasing taxes on financial transactions. The government has said the tax measures are necessary to fund development programs and cut public debt.

In a bid to minimize the public outcry, the government softened its position a little, with President Ruto endorsing recommendations to scrap some of the new levies, including on car ownership, bread, and the eco levy on locally manufactured goods. The Finance Ministry has said such concessions would blow a Ksh200 billion ($1.56 billion) hole in the 2024/25 budget and necessitate spending cuts. However, protesters and opposition parties said that the concessions were insufficient and wanted the whole bill abandoned.

Finance Bill Withdrawn

President Ruto informed the nation that he would not sign the finance bill into law in a televised national address. As a result, the bill will be returned to Parliament with the recommendation that all its clauses be deleted. The President indicated that he had written this recommendation to the Speaker of the National Assembly.

Way Forward

As President Ruto acknowledged that the bill's withdrawal would impact public debt, which his administration aimed to control. "Because we have gotten rid of the Finance Bill 2024, we must have a conversation on how to manage the affairs of the country and the debt situation together." To help tackle the fiscal deficit, President Ruto said the government will implement austerity measures, beginning with cuts to the presidency's budget. President Ruto has pledged to start a dialogue with Kenyan youth but has yet to provide more details.

IA Insights

Despite the bill's scrapping, some protesters vowed to "occupy State House" and call for President Ruto's resignation. Therefore, this mitigated the impact to businesses and international companies operating in Kenya. So far this has not impacted debtor’s businesses in Kenya since payments are still being made. We are monitoring the situation very closely.

Written by: Rebecca Wanjiru

*This article is informative and is not to be used as legal, economic, or commercial advice.

Sources: The East African, The Pan African Review,