Kenya’s mid­dle class is the cen­ter that holds the coun­try togeth­er. If it falls apart, the coun­try too inevitably falls apart.
Last year in Decem­ber, the World Bank revealed that a third of Kenya’s mid­dle class is just an eco­nom­ic shock away from slid­ing into pover­ty. Thanks to the depressed econ­o­my, their dis­pos­able income is at a record low, which dents the econ­o­my further.
The Kenya Bureau of Sta­tis­tics has report­ed an aver­age infla­tion rate of 7.7 in 2022 which direct­ly affect 16 mil­lion Kenyans in the infor­mal sec­tor and 3 mil­lion in the for­mal sec­tor. As such, the man­u­fac­tur­ing sec­tor is already fac­ing tur­bu­lence because in 2022, its growth slowed down to 2.7 per cent com­pared to 7.3 per cent in 2021. Regret­tably, such a slump in parts of a vibrant pri­vate sec­tor which employs 1.4 mil­lion is fer­tile ground for eco­nom­ic hem­or­rhage. Indeed, when the pri­vate sec­tor sneezes, the employ­ment scene catch­es a cold.
It is against this back­drop that the Finance Bill is mak­ing an appear­ance. The fair mil­lion-dol­lar ques­tion is this – can this bill res­cue the country’s floun­der­ing mid­dle class from slid­ing back to pover­ty? The Kenya Asso­ci­a­tion of Man­u­fac­tur­ers (KAM) and the Kenya Pri­vate Sec­tor Alliance (KEPSA) don’t think so.
The two lead­ing indus­try voic­es, are warn­ing that some of the pro­vi­sions in the bill will make Kenya an unat­trac­tive trade des­ti­na­tion. For instance, adding tax on clink­er, wire rod and bil­let steel which are raw mate­ri­als will instant­ly cre­ate trade diver­sion in favor of oth­er African coun­tries. This will deal a major blow to local man­u­fac­tur­ing and the 170,000 jobs in the cement and steel indus­try alone.
They state that the pro­posed paper sec­tor tax hike from 13% to 23% will jeop­ar­dize the Sector’s Sh10 bil­lion invest­ment and neg­a­tive­ly impact 120,000 jobs.
Regard­ing the Finance bill’s pro­pos­al of exemp­tion of VAT upon attain­ment of 50% of local con­tent in the auto­mo­tive man­u­fac­tur­ing, the play­ers sug­gest that there be a well-thought-out frame­work that allows pro­gres­sion intend­ed to build local capac­i­ty even as we attract for­eign direct investors.
The KAM and KEPSA has cau­tioned that this raft of tax pro­pos­als will hike man­u­fac­tur­ing cost and result in a price spike of Kenyan prod­ucts. For instance, it will be 13% cheap­er to import cement from Egypt under the Com­mon Mar­ket for East­ern and South­ern Africa (COMESA). While these pro­pos­als are on the table Kenya is already a super­mar­ket of prod­ucts from neigh­bor­ing coun­tries because for instance Kenya’s lead­ing paper man­u­fac­tur­ers are pro­duc­ing at about 20% capac­i­ty in Kenya and 100% capac­i­ty in Tanzania.
In the cir­cum­stances, tens of thou­sands of jobs will be lost, hit­ting the mid­dle class hard. As per the World Bank warn­ing in Decem­ber, if that hap­pens, the hun­dreds of thou­sands who depend on this mid­dle class for their liveli­hoods, will slip even deep­er into impoverishment.
The Finance Bill if passed as is, might, there­fore, turn out to be a poi­soned chal­ice as it will bleed jobs and deprive the gov­ern­ment of the increased tax rev­enue that it is seeking.
Apart from the man­u­fac­tur­ing sec­tor, the hous­ing levy pro­posed in the Finance Bill can end up becom­ing a lit­i­ga­tion land­mine. Kenya’s con­sti­tu­tion in Arti­cle 250, (8) pro­tects the remu­ner­a­tion of pub­lic offi­cers in inde­pen­dent com­mis­sions. If the hous­ing levy inter­feres with remu­ner­a­tion of these pub­lic offi­cers by impos­ing what may be deemed as a force­ful deduc­tion due to lack of con­cur­rence in this mat­ter, any­one can sue the Gov­ern­ment for mak­ing an uncon­sti­tu­tion­al move.
To avoid such pit­falls in a well-intend­ed process, there is need for effec­tive, sub­stan­tive and com­pre­hen­sive pub­lic par­tic­i­pa­tion. In all these, we must not lose sight of the over­all well­be­ing of Kenyans. The famous words of Win­ston Churchill come to mind that “for a nation to try to tax itself into pros­per­i­ty is like a man stand­ing in a buck­et and try­ing to lift him­self up by the handle.”Think green, act green!