Kenya’s president drops tax hike after deadly unrest

Kenya’s President William Ruto, on Wednesday, bowed to pressure from violent protesters and dropped the controversial tax bill which sought to raise $2.3billion in new levies in the Eastern Africa country, Daily Trust reports. At least 23 people died in the anti-tax hike demonstration which took thousands of young men to the streets of Nairobi, […]

Kenya’s President William Ruto, on Wednesday, bowed to pressure from violent protesters and dropped the controversial tax bill which sought to raise $2.3billion in new levies in the Eastern Africa country, Daily Trust reports.

At least 23 people died in the anti-tax hike demonstration which took thousands of young men to the streets of Nairobi, the capital city of Kenya, and several other cities. The protest which began online, gathered momentum and paralysed socio-economic activities in the country for days.

The original bill proposed taxes on bread, cooking oil, mobile money services, specialised hospitals and on motor vehicles – all of which Kenyans said would worsen the cost-of-living crisis.

Since last week, the streets of Kenya have been marred by protests after lawmakers approved tax increases that are even unpopular with supporters of the president, who once vowed to reduce the cost of living.

The doubling of the tax on petroleum products, from 8% to 16%, is expected to have a ripple effect on East Africa’s economic hub, with the prices of goods and services expected to increase.

The administration of President William Ruto, who was elected last year, has only made things harder, one supporter said.

“He said he was going to make life easier for us hustlers. We are now unable to afford food. Prices are higher than they were before the elections,” hairdresser Evelyne Adhiambo said.

People earning above 500,000 shillings ($3,500) now will pay 32.5% in taxes, and those making above 800,000 shillings will pay 35%. Combined with a new housing tax of 1.5% and a medical insurance tax of 2.5%, the new burden will see some Kenyans part with about 40% of their income.

Teresia Kathina, a civil servant for 26 years, said it will be the highest employees have ever paid in taxes.

“This feels cruel because of the inflation rates,” she said.

Economist Aly Khan Satchu said the new law “represents the highest tax rate across every segment.”

Small businesses are also being hit, with a tax on their total sales increasing from 1% to 3%. Business people said this will kill the already struggling small businesses that have been reporting losses since the COVID-19 pandemic started.

“They are essentially telling us to shut down, because we will not take loans to pay taxes,” said Moses Munyao, a wholesale shop owner in the capital, Nairobi.

Ruto campaigned on a platform of reducing the cost of living. While seeking election, he accused former President Uhuru Kenyatta of letting food costs “skyrocket because he has never slept without food in his life, as he was born in a wealthy family.”

Ruto’s election win was largely attributed to his appeal to voters as a fellow “hustler” who rose from a humble background to senior roles in government, including as Kenyatta’s vice president.

Ruto has sought to justify the increased taxes as the only way to reduce borrowing for a government struggling with a public debt of 9.4 trillion shillings ($67 billion) and is classified by the World Bank as being at high risk of debt distress.

The president was expected to sign the new bill into law before the start of the government’s financial year on July 1.

Satchu, the economist, said the petrol tax is a reform that the International Monetary Fund has been championing for some time and may have been a “soft precondition” for the $1.1 billion IMF package recently announced for Kenya.

“It’s a relatively frictionless tax for the government to collect. However, clearly it will create pronounced ripple effects throughout the economy in that it will raise prices across the economy and further crimp and reduce incomes, which have already been under downside pressure,” Satchu said.

He said the tax on small businesses is meant to increase the number of taxpayers but will hurt loss-making businesses. Some in Kenya believe that this area “has largely escaped the tax net, and therefore 3% remains sufficiently low for it to make more sense to pay the tax than take evasion measures.”

The bill was passed by parliament on Tuesday, despite nationwide demonstrations against it.

Protesters broke into parliament, vandalising the interior and setting parts of the complex on fire. The mace was stolen.

Ruto initially responded with defiance. He ordered the military to be deployed, saying “violence and anarchy” would not be tolerated.

But he climbed down on Wednesday, as public anger grew over the killing of protesters.

BBC quoted Wanjeri Nderu, head of the International Society for Human Rights, to have said the experience during the protest was “like we were at war”, adding that police were using live ammunition even before parliament was breached.

Catholic bishops also condemned the actions of the security forces and “earnestly appealed to the police not to shoot at the protesters”, while also urging protesters to remain peaceful.

UN Secretary General Antonio Guterres said he was “deeply saddened by the reports of deaths and injuries – including of journalists and medical personnel”.

He also urged the Kenyan authorities to “exercise restraint”, and called for all demonstrations to be peaceful.

Ruto later yielded to pressure and announced he would not sign a finance bill including the tax increases.

“Listening keenly to the people of Kenya who have said loudly that they want nothing to do with this finance bill 2024, I concede. And therefore, I will not sign the 2024 finance bill, and it shall subsequently be withdrawn,” he said in a televised address with lawmakers, some clapping, seated behind him.

Ruto said he would now start a dialogue with Kenyan youth, without going into details, and work on austerity measures – beginning with cuts to the budget of the presidency – to make up the difference in the country’s finances.

He said the loss of life on Tuesday was “very unfortunate”.

Like Kenya, like Nigeria

Analysts said the uproar over new tax measures in Kenya speaks to the broader economic challenges in Nigeria and other African countries.

They said in Nigeria, citizens have been facing a myriad of economic challenges following removal of fuel subsidy, floating of the naira, increase in electricity tariff, among others.

Like Ruto, President Bola Tinubu won the keenly contested 2023 presidential election on the promises to lessen the economic burden of the people. His Renewed Hope agenda focused on food security, poverty alleviation, economic growth, job creation and access to capital, inclusivity, the rule of law, and the fight against corruption.

But in the last one year, the reverse has been the case. Tinubu’s administration has been under fierce attacks over what experts termed growing economic hardship in the land. The government and the organised labour at different times squared up over the demand for a new minimum wage to conform with the economic reality.

An economist, Dr Oluseye Ajuwon, told Daily Trust that economic challenge remains a global phenomenon, but African countries are the worst hit because of the low level of productivity.

“We are only deceiving ourselves that the situation of things in Nigeria is worse than Kenya. Have you ever lived in Kenya and seen what’s happening there? You know whether the situation is worse? Have you been to Ghana and seen the situation in Ghana? What’s happening is world over. And Africa is the worst hit because we are not that productive the way developed countries are,” Ajuwon, who is a lecturer at the Department of Economics, University of Lagos, submitted.

He, however, warned the federal government to listen to Nigerians and indeed the organised labour by addressing citizens’ demands to avoid a replica of Kenya’s protest in Nigeria.

Ajuwon said Kenyans have been able to achieve what they wanted.

“We are hoping Nigeria’s situation will not degenerate to that level. If the government refuses to listen to them then it may degenerate to that level. I don’t pray it degenerates to that level because it has never paid any economy. Within one day that the labour did (strike), we all know the consequences of it on the whole economy. So, nobody prays for that, but when the government refuses to listen then a clear message needs to be sent across,” he said.