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Uhuru's bid to shield economy fell short: analysts

Friday March 27 2020
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Federation of Kenya Employers CEO Jacqueline Mugo holds a press conference about the Covid-19, at NSSF on March 23, 2020. PHOTO | LUCY WANJIRU | NATION MEDIA GROUP

By PAUL WAFULA

Analysts have welcomed the measures announced by President Uhuru Kenyatta on Wednesday but argued that they are not enough to shield the average Kenyan from the adverse impact of Covid-19 on the economy.

The measures include scrapping income tax on those who earn less than Sh24,000 monthly, reducing corporate tax to 25 per cent and cutting Value Added Tax (VAT) from 16 to 14 per cent.

Other proposals include voluntary salary cuts of 80 per cent for the president and his deputy, 30 per cent for Cabinet secretaries and their assistants and 20 per cent for principal secretaries.

Tracking coronavirus

The president also ordered the payment of pending bills worth Sh13 billion and a tax refund of Sh10 billion owed to companies.

These proposals are subject to parliamentary approval, but it is highly unlikely that MPs will veto them.

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On Thursday, Speakers of the two houses said they were recalling members to consider the proposals.

The Federation of Kenya Employers (FKE) lauded the measures but asked for more.

PENDING BILLS

The FKE noted that the proposed tax reliefs will only benefit the low-income and high-income earners but will leave out the bulk of the middle-income population.

“The measures were positive and bold in some areas. We are grateful of the PAYE tax relief for the low-income earners. But this will only benefit the low income and high-income earners who attract the 30 per cent tax. It has left out quite a lot of people in the middle-income bracket,” FKE chief executive Jacqueline Mugo told the Nation on phone.

She said the government should have considered a domestic relief for all employees. She said employers had asked for a 50 per cent reduction in VAT, from 16 to 8 per cent.

“The government should consider scrapping the turnover tax altogether since it is charged on total sales. This means that an SME can still be making a loss but be forced to pay tax,” Ms Mugo said.

President Kenyatta has proposed a reduction of turnover tax from three to one per cent.

Ms Mugo welcomed the directive to clear pending bills and the measures to shield the elderly and the vulnerable.

“We recognise that there is a limit to what the government can do but members say these measures are not enough. The government should be ready to do more as we gauge the situation,” she said.

CURFEW

The curfew will force employers to establish shifts and reorganise their operations, she added.

“We are with the government on this but we should ensure these measures do not become counterproductive. The isolation facilities should be ‘more habitable’ so that they do not defeat the purpose of a quarantine,” she said.

Public Accounts Committee (PAC) Chairman Opiyo Wandayi said the measures will help cushion Kenyans.

“Alongside this, I urge (the president) to sustain the war against corruption to free up more resources towards provision of services,” Wandayi said.

The Institute of Economic Affairs (IEA), a public policy think tank, said the economic realities of restrictions to movement were harsh to most Kenyans.

“While the public health objective to stop people moving around is noble, when you knock it against the reality that a majority of people have to actually move around to make a living, it might not be applicable in a majority of the cases,” the IEA said in a tweet.

Economist David Ndii said the move to have State officers take a pay cut is mere tokenism and a public relations stunt.

LIFELINE FUND

The pay cuts would result in savings in the order of Sh800 million a year out of the national government wage bill of more than Sh400 billion.

“It will save less than 0.05 per cent of the wage bill. They will burn it on something else,” he tweeted.

Dr Ndii is advocating for a lifeline fund like the one launched by Canada for workers and small businesses.

“When will Uhuru Kenyatta and his government realise that this is the only policy instrument that can mitigate the economic shocks from this crisis?”

Mr Tony Watima, an economist, said the government has made an effort to be responsive to the public. He said the tax relief for those earning Sh24,000 and below, together PAYE and VAT reductions, will increase disposable incomes.

“The government should have frozen turnover tax. Business is at its all-time lowest and asking businesses to pay a tax which is tied to revenue doesn’t make sense at this time,” Mr Watima said.

BAILOUT PLAN

The measures also failed to address the needs of the industries hardest hit, such as horticulture, aviation and tourism.

He said the government should come up with a plan to bail out these sectors, particularly horticulture, which is one of the top foreign exchange earners.

“SMEs are also shutting down because they have no cash flows. We hope the government will be coming up with economic measures for them, such as interest free loans,” Mr Watima said.

A bigger reduction on the VAT on fuel would have been a more effective measure, he added.

“We also need to see where the government has cut its costs in order to accommodate these tax breaks when the bill is brought to Parliament,” he said.

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