Kenya has in the recent past been rocked by a wave of opposition led protests with the high cost of living and the new government's now suspended revenue raising measures, through the Finance Act of 2023, at the heart of it.
Among the contentious new introductions through the Finance Act of 2023 are the standard rating of Value Added Tax on petroleum products at 16.0% up from 8.0%; a new deduction amounting to 1.5% of workers gross pay towards the affordable housing agenda and two new tax rates targeting the high income earners. The two new tax rates are 32.5% per monthly income ranging between Kes 500,000 (US$ 3,534.0) and Kes 800,000 (US$ 5,654) and 35.0% for any monthly income above Kes 800,000.
What do these protests mean for Kenya? A few points are worth bearing in mind:
- The new financial year (i.e, 2023/24 which started on July 1st, 2023) is off to a bumpy start given that the Finance Act 2023 has been suspended pending a hearing by a bench to be constituted by the Chief Justice. Coming against the backdrop of below target tax revenue mobilisation at 95.3% performance rate in the just ended financial year (i.e, 2022/23 which ended on June 30th, 2023), uncertainty around the fate of the new government's debut revenue raising plan does not augur well
- The protests are inflicting considerable damage to the economy. The Kenya Private Sector Alliance has reported that the recurrent shutting down of businesses in fear of amplified risks translates into a daily loss of Kes 3.0 billion (US$ 21.2 million) with some of the most adversely hit sector including wholesale and retail; tourism and hospitality as well as transport and logistics. This presents a particular challenge to the Kenyan economy which has just shown signs of rebounding from the COVID-19 induced downturn.
- Kenya's political risk profile is adversely affected and potentially presents a challenge as the sovereign plans to make a return to the global markets through issuance of a Eurobond in the current financial year. Kenya has already short-listed lead arrangers for the planned issuance and the National Treasury's top leadership was in London in early July meeting bond investors ahead of the issuance. Recurrent protests risk dampening investor appetite for the country's debt especially given the debt distress that the country is already grappling with. In its 2023 syndicated loan issuance, Kenya was compelled to revise downward its ticket size from US$ 600.0 million to US$ 500.0 million on low appetite from investors
- In the just released tax revenue outturn for the financial year 2022/23, consumption taxes (i.e, domestic Value Added Tax and domestic Excise Tax) posted decelerated growth relative to other years in the recent past. This is an indication of the fact that Kenyans' disposable income has come under distress as the cost of living continues to rise amidst an adverse macroeconomic environment. With protests slowing down the business environment even further, this is bound to get worse
